CHAPTER III

CORE APPROACH FOR THE DETERMINATION OF AVAs

Overview of the core approach
Article 7
1
Institutions shall calculate AVAs under the core approach, by applying the following two-step approach:
a
they shall calculate AVAs for each of the categories described in paragraphs 10 and 11 of Article 105 of Regulation (EU) No 575/2013 (‘category level AVAs’) according to paragraph 2 of this Article;
b
they shall sum the amounts resulting from point (a) for each of the category level AVAs to provide the total AVAs for the purposes of Article 1.
2
For the purposes of point (a) of paragraph 1, institutions shall calculate category level AVAs in one of the following ways:
a
according to Articles 9 to 17;
b
where the application of Articles 9 to 17 is not possible for certain positions, according to a ‘fall-back approach’, whereby they shall identify the related financial instruments and calculate an AVA as the sum of the following:
1. 100 % of the net unrealised profit on the related financial instruments;
2. 10 % of the notional value of the related financial instruments in the case of derivatives;
3. 25 % of the absolute value of the difference between the fair value and the unrealised profit, as determined in point (i), of the related financial instruments in the case of non-derivatives.
For the purposes of point (b)(i) of the first paragraph, ‘unrealised profit’ shall mean the change, where positive, in fair value since trade inception, determined on a first-in-first-out basis.