Question ID
2017_3568
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Own funds
Article
77
Subparagraph
b
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
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 used part of the predetermined amount for market making purposes Article 78(1) last subparagraph Regulation (EU) No 575/2013 (CRR)?

2. Should short positions in own AT1 and/or T2 instruments have an impact on the amount to be deducted pursuant to Article 28 Commission delegated regulation 241/2014 and EBA Q&A 1352 [as originally published on 8 July 2014]?

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

Submission date
Final publishing date
Final answer

[The original text of the question refers to provisions on market making that were previously included in Commission delegated regulation 241/2014 (RTS) and that have been deleted from this delegated regulation to be transferred directly into Regulation (EU) No 575/2013 (CRR)]

 

1. No, the second subparagraph of Article 29(3)(b)78(1) of Regulation (EU) No 241575/20134 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 issueance. 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 reducepurchase own funds pursuant to Article 77 of the CRR for market making purposes (Article 29(3)(b) of the Commission delegated regulation 241/2014).

 

2. No, amended Q&A 2014_1352 states that “The predetermined amount for which the competent authority has given its permission under the second subparagraph of Article 29(378(1) of Regulation (EU) No 241/2014575/2013 should be deducted, from corresponding elements of the institution’s own funds, from the moment the authorization is granted, pursuant to Article 28(32) of that of Delegated Regulation (EU) No 241/2014 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.

 

For the sake of completeness, the predetermined amount for which the resolution authority, after consulting the competent authority, has given its permission under the second subparagraph of Article 78a(1) of the CRR should be deducted from the institution’s eligible liabilities instruments from the moment the authorisation is granted pursuant to Article 32b(3) of Delegated Regulation (EU) No 241/2014 . Furthermore, the used part of this predetermined amount should be calculated on the basis of the gross long position as described above.

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

 

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

Update 14.02.2023: the Q&A has been reviewed and the changes are highlighted in mock track changes.

Update 09.06.2023: the Q&A has been reviewed in the light of the changes introduced by Commission Delegated Regulation (EU) No 2023/827 laying down regulatory technical standards amending Delegated Regulation (EU) No 241/2014. As a result, only the disclaimer that was introduced on 14.02.2023 in the “EBA answer" section has been deleted.

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.