Article 2
Specific methodology for homogenous index instruments
1. By way of derogation from Article 1, where an institution represents a position in a homogeneous index instrument as a single risk factor in its risk measurement model, the institution may choose to map the risk factor in accordance with the methodology set out in paragraph 2.
For the purposes of this Article, a ‘homogeneous index’ shall mean an index that has one of the following compositions:
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(a) |
equities or other indices composed by equities only; |
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(b) |
bonds or other indices composed by bonds only; |
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(c) |
credit default swaps or other indices composed of credit default swaps only; |
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(d) |
commodities or other indices composed of commodities only. |
2. The liquidity horizon of a single risk factor modelling a homogeneous index instrument as referred to in paragraph 1 may be determined by an institution as follows:
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(a) |
the institution shall map the risk factor to the broad risk factor category of Table 2 of Article 325bd of Regulation (EU) No 575/2013 corresponding to the appropriate category for the homogenous index composition; |
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(b) |
the institution shall apply the general methodology laid down in Article 1 separately to each of the homogeneous index’s constituents to determine their appropriate liquidity horizons; |
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(c) |
the institution shall compute the weighted average of the liquidity horizons determined in accordance with point (b) on the basis of each constituent’s respective weight in the index; |
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(d) |
the liquidity horizon of the risk factor modelling the homogeneous index instrument shall be the shortest liquidity horizon of the index’s constituents sub-categories which is greater or equal to the weighted average referred to in point (c). |
For the purposes of point (a), a risk factor of a homogenous index instrument having the composition referred to in paragraph 1, points (b) and (c), shall be mapped to the broad risk factor category ‘Credit spread’.