Article 3
Technical elements to be included in the hypothetical changes in a trading desk portfolio’s value for the back-testing requirements performed at trading desk level
1.
For the purposes of the trading desk back-testing referred to in Article 325bf(3) of Regulation (EU) No 575/2013, institutions shall calculate the hypothetical changes in a trading desk portfolio’s value by using the same techniques, including the same pricing methods, model parametrisations and market data, as those used in the end-of-day valuation process, without considering any fees and commissions.
2.
When calculating the hypothetical changes in the trading desk portfolio’s value, institutions shall reflect the changes in the value of the trading desk portfolio that are due to the passage of time in the same way they reflect such changes in the calculation of:
(a)
the expected shortfall risk measure referred to in Article 325ba(1), point (a), of Regulation (EU) No 575/2013;
(b)
the stress scenario risk measure referred to in Article 325bk of Regulation (EU) No 575/2013.
3.
When calculating the hypothetical changes in a trading desk portfolio’s value, institutions shall include in that value all those adjustments that have been considered in the end-of-day valuation process referred to in paragraph 1 and that are market risk related, that are calculated on a daily basis, and that are included in the institution’s risk-measurement model, with the exception of all of the following adjustments:
(a)
credit valuation adjustments reflecting the current market value of the credit risk of counterparties to the institution;
(b)
adjustments attributed to the institution’s own credit risk that have been excluded from own funds in accordance with Article 33(1), point (b) or (c), of Regulation (EU) No 575/2013;
(c)
additional value adjustments deducted from Common Equity Tier 1 capital in accordance with Article 34 of Regulation (EU) No 575/2013.
4.
Institutions shall calculate the value of an adjustment as referred to in paragraph 3 on the basis of all the positions assigned to that trading desk. Institutions shall include changes in an adjustment’s value based on a comparison between the end-of-day adjustment’s value and, assuming unchanged positions in the trading desk portfolio, the adjustment’s value at the end of the subsequent day.
5.
In addition to the exclusions laid down in paragraph 3, points (a), (b), and (c), institutions may also exclude from the calculation of the hypothetical changes to a trading’s desk portfolio’s value an adjustment that is calculated on a net basis in the end-of-day valuation process across sets of positions assigned to more than one trading desk, where all of the following conditions are met:
(a)
that adjustment is, due to its nature, calculated on a net basis across sets of positions that are assigned to more than one trading desk;
(b)
the internal risk management of that adjustment is consistent with the level at which the adjustment is calculated;
(c)
the institution documents all of the following:
(i)
the sets of positions across which the adjustment is calculated;
(ii)
the reasoning underpinning the calculation of the adjustment across the sets of positions referred to in point (i);
(iii)
the justification for not calculating the adjustment on the basis of positions assigned to that trading desk only.
