Article 3
Simplified method for identifying the main risk driver of a non-derivative position and for determining whether the non-derivative transaction represents a long or a short position in its main risk driver
1. By way of derogation from Articles 1 and 2, institutions may identify the main risk driver of the non-derivative positions referred to in paragraphs 2 to 8 of this Article and determine whether such positions represent long or a short positions in the main risk driver by applying the approaches set out in those paragraphs.
2. For bonds which consist in fixed-rate debt instruments without optionality features, institutions shall use the following approach:
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(a) |
institutions shall identify the main risk driver depending on the credit quality step and sector of the bond referred to in Article 325ah of Regulation (EU) No 575/2013 and the residual maturity of the bond, on the basis of either of the following:
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(b) |
where the main risk driver identified in accordance with point (a) of this paragraph is the risk-free rate, that main risk driver shall be in the currency in which the bond is denominated and with one of the maturities set out in Article 325l(1) of Regulation (EU) No 575/2013, selected to match as close as possible the maturity of the bond; |
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(c) |
where the main risk driver identified in accordance with point (a) of this paragraph is the issuer credit spread rate, that main risk driver shall be the credit spread of the issuer of the bond and with one of the maturities set out in Article 325m(1) of Regulation (EU) No 575/2013, selected to match as close as possible the maturity of the bond; |
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(d) |
institutions shall determine whether the position represents a long or a short position in its main risk driver on the basis of the following:
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3. For bonds which consist in floating-rate debt instruments without optionality features, institutions shall use the approach set out in paragraph 2. Where the main risk driver identified in accordance with paragraph 2, point (a), is the risk-free rate and the residual maturity of the bond is higher than one year, the main risk driver shall be the issuer credit spread rate instead, determined in accordance with paragraph 2, point (c).
4. For a stock position, the main risk driver shall be the equity spot price.
The position shall be long in its main risk driver where the stock is bought, and short where the stock is sold.
5. For a cash position in a currency different from the institution’s reporting currency, the main risk driver shall be the spot exchange rate between the currency of that cash position and the institution’s reporting currency.
The position shall be long in its main risk driver where the cash position is an asset item, and short where it is a liability item.
6. For positions in a physical commodity, the main risk driver shall be the commodity spot price which corresponds to the commodity type of the position.
The position shall be long in its main risk driver where the physical commodity is an asset item, and short where it is a liability item.
7. For a position in a collective investment undertaking (CIU), the main risk driver shall be the risk factor corresponding to that CIU in the bucket ‘other sector’ in Table 8 of Article 325ap(1) of Regulation (EU) No 575/2013.
The position shall be long in its main risk driver where the shares or units of the CIU are bought, and short where the shares or units of the CIU are sold.
8. For a position in a repurchase transaction where the institution or its counterparty transfer securities as referred to in paragraphs 2, 3 and 4, the main risk driver shall be the corresponding general interest rate or equity repo rate.
The position shall be long in its main risk driver where the repurchase transaction is governed by a repurchase agreement, and short where it is governed by a reverse repurchase agreement.