(1)

For the purposes of specifying the calculation of the amount of the ‘total margin required’, referred to in Article 23(2) of Regulation (EU) 2019/2033, and in order to increase clarity and consistency in relation to its components, it should be clarified that the amount of the total margin required includes any collateral required by the clearing member in accordance with its margin model.

(2)

In accordance with Article 23(2) of Regulation (EU) 2019/2033, the total margin required on a daily basis is used for the calculation of K-CMG. Where clearing members adapt their required margin within 1 day, this results in more than one margin call within the same day. In order to avoid uncertainty about which of those margin requirements to use and considering that the third highest amount during a period of 3 months is to be used for the calculation of K-CMG, it is necessary to specify that the daily amount of margin required should be the highest of those margin requirements of a given day.

(3)

Investment firms may use the clearing services of multiple clearing members. For positions for which K-CMG is applied, the determination of the amount of total margin required from the investment firm should be comprehensive and include the full margin required by all clearing members. Therefore, where an investment firm uses K-CMG for positions that are subject to clearing by multiple clearing members, CMG should be calculated as the sum of the margins required across all clearing members. An investment firm should, accordingly, first calculate the total daily amount of margin required as the sum of the total margin required by all clearing members, before determining the third highest amount of total margins required on a daily basis as required by Article 23(2) of Regulation (EU) 2019/2033.

(4)

For the application of K-CMG on a portfolio basis, where the whole portfolio is subject to clearing or margining, the conditions laid down in Article 23(1) of Regulation (EU) 2019/2033 have to be met. Therefore, a portfolio of cleared positions assigned to one trading desk can make use of K-CMG while, at the same time, a portfolio of cleared positions assigned to another trading desk can make use of the K-factor ‘net position risk’ (K-NPR). In order to prevent arbitrage, the use of K-CMG and K-NPR across trading desks should be consistent. Therefore, the same approach should be used for trading desks that are similar in terms of business strategy and trading book positions.

(5)

For the purposes of the assessment under Article 23(1), point (e), of Regulation (EU) 2019/2033, the competent authority should be required to assess whether the K-CMG approach is appropriate insofar it reflects the risk profile of the investment firm’s trading book positions. An investment firm should be required to compare regularly its own risk assessment with the margins required by clearing members, for the purpose of assessing whether those margins are still a good indicator of the level of risk to market of the investment firm. At the point of assessment by the competent authority, the investment firm should make a comparison between the capital requirements under K-NPR and K-CMG and should be able to adequately justify the difference between those capital requirements to the competent authority. An assessment by the competent authority should be positive only when all these conditions are met. In particular, the competent authority should ensure that the investment firm is able to monitor and adequately justify difference between the outcome of the two methodologies, K-NPR and K-CMG, especially in cases of large variations of the required margins.

(6)

A high frequency of switching between the use of K-NPR and K-CMG is a strong indicator of potential disproportionate or unsound use of own funds requirements. It is possible to prevent regulatory arbitrage by constraining the frequency of switching positions between the use of K-NPR and K-CMG. A requirement to make continuous use of one of the two methods for a trading desk for at least 2 years would be proportionate to address the risk of regulatory arbitrage. However, in exceptional cases (e.g. a business restructuring) where a trading desk changes to such an extent that it can be considered as a different trading desk, the competent authority should allow an investment firm to change methods within that 2-year period.

(7)

This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Banking Authority (EBA).

(8)

The EBA has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council (2),