Single Rulebook Q&A

Question ID: 2017_3568
Legal act : Regulation (EU) No 575/2013 (CRR) as amended
Topic : Own funds
Article: 77
Paragraph:
Subparagraph: b
COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 241/2014 - RTS for Own Funds requirements for institutions
Article/Paragraph : 29(3)
Type of submitter: Competent authority
Subject matter : Market making
Question:

1. Should short positions in own AT1 and/or T2 instruments be taken into account in the calculation of the predetermined amount for market making purposes (Article 29(3) Commission Delegated Regulation 241/2014)?

2. Should short positons in own AT1 and/or T2 instruments have an impact on the amount to be deducted pursuant to Article 28(2) Commission Delegated Regulation 241/2014 and EBA Q&A 1352?

Background on the question:

Consider the following:

a. On 01.01 a Bank obtains a permission to repurchase AT1 instruments A, B and C for market making purposes for a predetermined amount of 100;

b. On 01.02 Bank A repurchases for market making purposes AT1 instrument A for 20;

c. On 01.03 Bank A enters in a short position on AT1 instrument B for 5.

For the question number 1, two options can be considered. 

Option A: The calculation of the predetermined amount should always be done on the basis of the gross long positions, as a consequence in the example the amount that the Bank can still repurchase after 01.03 is 80 = 100 – 20

Option B: The calculation of the predetermined amount can be done on the basis of the net long positions (if for instance the conditions set out in Article 57(a) CRR are met), as a consequence, in the example the amount that Bank can still repurchase after 01.03 is 85 = 100 – 20 + 5 (the additional 5 can be used only to repurchase instrument B)

For question number 2 EBA Q&A 1352 states that “The predetermined amount for which the competent authority has given its permission under Article 29(3) of Regulation (EU) 241/2014 should be deducted from the moment the authorization is granted, pursuant to Article 28(2) of that Regulation, as sufficient certainty about the repurchase is deemed to exist from that moment”. As a consequence, the whole predetermined amount has to be deducted since the permission is granted regardless of the amount of actual repurchases/sales and of the short positions. With reference to the example, both on 01.01 and on 01.03 the amount to be deducted is 100

Date of submission: 20/10/2017
Published as Final Q&A: 27/04/2018
EBA answer:

1. No, Article 29(3)(b) of Regulation (EU) No 241/2014 does not provide for the possibility to take into account short positions, hence the calculation of the predetermined amount should always be done on the basis of the outstanding amount of the relevant issuance. The calculation of the used part of this amount should always be done on the basis of the gross long position, i.e. not taking into account short positions in own AT1 and/or Tier 2 instruments. Article 57(a) CRR is not applicable in this case, as it only refers to Article 56(a) CRR and not to the prior permission to repurchase own funds for market making purposes (Article 29(3)(b) of the Commission delegated regulation 241/2014).

2. No, Q&A 2014_1352 states that “The predetermined amount for which the competent authority has given its permission under Article 29(3) of Regulation (EU) 241/2014 should be deducted from the moment the authorization is granted, pursuant to Article 28(2) of that Regulation, as sufficient certainty about the repurchase is deemed to exist from that moment”. As a consequence, the whole predetermined amount has to be deducted since the permission is granted regardless of the short positions.

Status: Final Q&A
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