Sunday, August 14, 2011

EU - Interinstitutional File: 2011/0202 (COD)

from: European Commission tor
dated: 25 July 2011
No Cion doc.: COM(2011) 452 final - Part III
AND OF THE COUNCIL on prudential requirements for credit institutions and investment firms


"Article 341
Calculation of the overall net foreign exchange risk position 

1. The institution's net open position in each currency (including the reporting currency) and in gold shall be calculated as the sum of the following elements (positive or negative):

(a) the net spot position (i.e. all asset items less all liability items, including accrued interest, in the currency in question or, for gold, the net spot position in gold);

(b) the net forward position, which are all amounts to be received less all amounts to be paid under forward exchange and gold transactions, including currency and gold futures and the principal on currency swaps not included in the spot position;

(c) irrevocable guarantees and similar instrumments that are certain to be called and likely to be irrecoverable;

(d) the net delta, or delta-based, equivalent of the total book of foreign-currency and gold options;

(e) the market value of other options.

The delta used for purposes of point (e) shall be, where relevant, that of the exchange concerned, subject to permission by the competent authorities, where that is not available, or for OTC options, that calculated by the institution itself using an appropriate model.
Permission shall be granted if the model appropriately estimates the rate of change of the option's or warrant's value with respect to small changes in the market price of the underlying.
The institution may include net future income/expensess not yet accrued but already fully hedged if it does so consistently.
The institution may break down net positions in composite currencies  into the component currencies according to the quotas in force.
Any positions which an institution has deliberately taken in order to hedge against the adverse effect of the exchange rate on its ratios in according to Article 87(1) mpermission by the competent authorities, be excluded from the calculation of net open currency positions. Such positions shall be of a non-trading or structural nature and any variation of the terms of their exclusion, subject to separate  permission by the competent authorities. The same treatment subject to the same conditions as above may be applied to positions which an institution has which relate to items that are  already deducted in the calculation of own funds.

3. An institution may use the net present value when calculating the  net open position in each currency and in gold provided that the institution applies this approach consistently.

4. Net short and long positions in each currency other than the reporting currency and the net long or short position in gold shall be converted at spot rates into the reporting currency. They shall then be summed separately to form the total of the net short positions and the total of the  net long positions respectively. The higher of these two totals shall be the institution's overall net foreign-exchange position.

5. Institutions shall adequately reflect other risks associated with options, apart from the delta risk, in the own funds requirements. 

6. EBA shall develop draft regulatory technical standards defining a range of methods to reflect  in the own funds requirements other risks, apart from delta risk, in a manner proportionate to  the scale and complexity of institutions' activities in options EBA shall submit those draft regulatory technical standards to the Commission by 1 January  2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the previous sub-paragraph in accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU) No 1093/2010. "


"Article 346
Positions in commodities

1. Each position in commodities or commodity derivatives shall be expressed in terms of the standard unit of measurement. The spot price in each commodity shall be expressed in the reporting currency.
2. Positions in gold or gold derivatives shall be considered as being subject to foreign-exchange risk and treated according to Chapter 3 or 5, as appropriate, for the purpose of calculating commodities risk. "



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