Single Rulebook Q&A

Question ID: 2016_2949
Legal act : Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 – CRR2
Topic : Market risk
Article: 105
Paragraph: 14
Subparagraph:
COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2016/101 - RTS for prudent valuation under Article 105(14) CRR
Article/Paragraph : 9(4)(c), 10(5)(c)
Type of submitter: Competent authority
Subject matter : Review and validation of criteria for the use of a reduced number of parameters
Question:

For purposes of internal independent review and annual validation of the netting methodology, can the testing be based on historical data from the most recent 100 trading days for the same or similar valuation inputs?

Background on the question:

The ratio of variance test is required where AVAs are calculated at the individual parameter level to allow for interrelationship via netting between the parameters. The ratio test does not directly assess the interrelationship in market price uncertainty between parameters, but looks at historical price or spread movements as an appropriate proxy. Assessing based on a similar valuation input would also be a representative proxy, ensuring that interrelationship is still taken into consideration while being considerably less resource intensive.

Date of submission: 18/10/2016
Published as Final Q&A: 20/01/2017
EBA answer:

Articles 9(4)(b)(c) and 10(5)(b)(c) of Regulation (EU) 2016/101 allow for institutions to perform the independent control function review and internal validation of the netting methodology using historical data from the most recent 100 trading days for the same or similar valuation inputs.

Status: Final Q&A
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