Consultation on draft Regulatory Technical Standards (RTS) on the definition of market

The European Banking Authority launches today a consultation paper on draft Regulatory Technical Standards (RTS) to define the term market for the purpose of calculating the ‘general’ component of market risk for equities under the standardised rules. The consultation runs until 31 August 2013.

The term market has to be defined for the purpose of calculating the general market risk component for equities under the standardised rules, thus assuming that two equities in the same market are subject to the same general risk.

In these draft RTS, the EBA is consulting on two definitions of market based on the two following criteria: nationality and currency.

The nationality criterion is based on the assumption that the ‘general’ risk stems from country-specific drivers. The currency criterion would, on the other hand, recognise that the introduction of a single currency in an already substantially integrated EU Single Market has blurred these country-specific drivers within the Euro-zone.

Under the pre-existing CRDII, most jurisdictions have already implemented the nationality approach via national transposition of the Directive. This approach is more conservative than the currency criterion in terms of capital requirements. However, the currency approach takes account of the growing integration of financial markets.

The EBA is requested to submit these draft RTS to the European Commission by 31 January 2014.

Background

The final comprise on the Capital Requirements Regulation and Capital Requirements Directive (CRR/CRD) provides a mandate for the EBA to define the term market for the purpose of calculating the general component of market risk for equities under the standardised rules.

The final text of the CRR also provides a mandate for the EBA to define a range of methods to reflect, in the own funds requirements, all the risks other than the delta risks in a proportionate way to the scale and complexity of institutions’ activities in options and warrants.

Consultation process

Comments to the consultation paper on the definition of market can be sent to the EBA by e-mail to EBA-CP-2013-15@eba.europa.eu by 31 August 2013, indicating the reference EBA/CP/2013/15.

All contributions received will be published following the close of the consultation, unless requested otherwise.