Single Rulebook Q&A

Question ID: 2016_2695
Legal act : Regulation (EU) No 575/2013 (CRR) as amended
Topic : Liquidity risk
Article: 418
Paragraph: 1
Article/Paragraph : Article 8(5)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Delegated Regulation (EU) 2015/61 - DR with regard to liquidity coverage requirement
Type of submitter: Credit institution
Subject matter : Liquid assets valuation in case of hedging with collateralized derivatives.

Should the potential close-out of hedges of securities included within the liquidity buffer be taken into account when hedging is performed through collateralized derivatives?

Background on the question:

The institution hedges with collateralized derivatives some of the bonds eligible for being included within the buffer (HQLA) in the context of LCR reporting. Collateral is made of cash or other L1 assets. It is not clear if the fair value of those deals are to be deducted from the valuation of hedged instruments.

Date of submission: 01/04/2016
Published as Final Q&A: 23/09/2016
EBA answer:

According to Article 8(5)(b) of the Commission Delegated Regulation (EU) No 2015/61 the net liquidity outflows and inflows of the potential close-out of hedges of securities should be assessed and included (if any) in the valuation of the relevant assets according to Article 9 of the Commission Delegated Regulation. Institutions shall consider the net flow (either outflow or inflow) that would arise if the hedge was to be closed out at the relevant date. The net flow should also reflect the effect of collateral to be received/posted in derivative transactions that qualifies as liquid assets as per Article 21.

Status: Final Q&A
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