Regulation (EU) No 575/2013 of the European Parliament and of the CouncilShow full title

[X1 [F1 Subsection 3 U.K. Own funds requirements for the default risk for securitisations included in the ACTP

Article 325ab U.K. Scope

1. For the ACTP, the own funds requirements shall include the default risk for securitisation exposures and for non-securitisation hedges. Those hedges shall be removed from the default risk calculations for non-securitisation. There shall be no diversification benefit between the own funds requirements for the default risk for non-securitisations, the own funds requirements for the default risk for securitisations not included in the ACTP and own funds requirements for the default risk for securitisations included in the ACTP.

2. For traded non-securitisation credit and equity derivatives, JTD amounts by individual constituents shall be determined by applying a look-through approach.

Article 325ac U.K. Jump-to-default amounts for the ACTP

1. For the purposes of this Article, the following definitions apply:

(a) ‘ decomposition with a valuation model ’ means that a single name constituent of a securitisation is valued as the difference between the unconditional value of the securitisation and the conditional value of the securitisation assuming that single name defaults with an LGD of 100 %;

(b) ‘ replication ’ means that the combination of individual securitisation index tranches are combined to replicate another tranche of the same index series, or to replicate an untranched position in the index series;

(c) ‘ decomposition ’ means replicating an index by a securitisation of which the underlying exposures in the pool are identical to the single name exposures that compose the index.

2. The gross JTD amounts for securitisation exposures and non-securitisation exposures in the ACTP shall be their market value or, if their market value is not available, their fair value determined in accordance with the applicable accounting framework.

3. Nth-to-default products shall be treated as tranched products with the following attachment and detachment points:

(a) attachment point = (N – 1) / Total Names;

(b) detachment point = N / Total Names;

where ‘ Total Names ’ shall be the total number of names in the underlying basket or pool.

4. Net JTD amounts shall be determined by offsetting long gross JTD amounts and short gross JTD amounts. Offsetting shall only be possible between exposures that are otherwise identical except for maturity. Offsetting shall only be possible as follows:

(a) for indices, index tranches and bespoke tranches, offsetting shall be possible across maturities within the same index family, series and tranche, subject to the provisions on exposures of less than one year laid down in Article 325x; long gross JTD amounts and short gross JTD amounts that perfectly replicate each other may be offset through decomposition into single name equivalent exposures using a valuation model; in such cases, the sum of the gross JTD amounts of the single name equivalent exposures obtained through decomposition shall be equal to the gross JTD amount of the undecomposed exposure;

(b) offsetting through decomposition as set out is point (a) shall not be allowed for resecuritisations or derivatives on securitisation;

(c) for indices and index tranches, offsetting shall be possible across maturities within the same index family, series and tranche by replication or by decomposition; where the long exposures and short exposures are otherwise equivalent, apart from one residual component, offsetting shall be allowed and the net JTD amount shall reflect the residual exposure;

(d) different tranches of the same index series, different series of the same index and different index families may not be used to offset each other.

Article 325ad U.K. Calculation of the own funds requirements for the default risk for the ACTP

1. Net JTD amounts shall be multiplied by:

(a) for tranched products, the default risk weights corresponding to their credit quality as specified in Article 325y(1) and (2);

(b) for non-tranched products, the default risk weights referred to in Article 325aa(1).

2. Risk-weighted net JTD amounts shall be assigned to buckets that correspond to an index.

3. Weighted net JTD amounts shall be aggregated within each bucket in accordance with the following formula:

• DRC _b = max {(Σ _{i ∈ long} RW _i · net JTD _i ) – WtS _ACTP · (Σ _{i ∈ short} RW _i · |net JTD _i |); 0}

  where:

  DRC _b

  =

  the own funds requirement for the default risk for bucket b;

  i

  =

  an instrument belonging to bucket b; and

  WtS _ACTP

  =

  the ratio recognising a benefit for hedging relationships within a bucket, which shall be calculated in accordance with the WtS formula set out in Article 325y(4), but using long positions and short positions across the entire ACTP and not just the positions in the particular bucket.

4. Institutions shall calculate the own funds requirements for the default risk for the ACTP by using the following formula:

where:

DRC _ACTP

=

the own funds requirement for the default risk for the ACTP; and

DRC _b

=

the own funds requirement for the default risk for bucket b.] ]