The term market should be defined in order to calculate the general component of market risk for equities according to the standardised rules, so that two shares in the same market are considered to be subject to the same general risk. The objective of this regulatory technical standard (RTS) is to define the concept of market for the calculation of the “general” component of equity market risk according to standardized rules. The final exposure draft of the RTS on CVA risk to determine a substitution spread and the specification of a limited number of smaller portfolios define the data quality requirements and minimum granularity of rating, sector and region attributes that institutions should consider when estimating an appropriate substitution spread to determine capital requirements for CVAs. The standards provide the flexibility to determine a substitution spread to ensure an operational framework that uses the approved internal model for specific market risk for debt securities. The regulatory technical standards also specify the number and size of portfolios that meet the criterion of a limited number of smaller portfolios and are therefore included in the CVA-Advanced approach, although they are outside the scope of the Internal Model Methodology (IMM) for counterparty credit risk. The thresholds of number and size below which non-IMM clearing sets are considered to meet the criterion of a limited number of smaller portfolios shall be established and, subject to the approval of the competent authorities, shall be included in the advanced methodology for calculating their capital requirements for CVA risks. The final draft of the regulatory technical standard defining the term “market” refers to the definition of “market” to be used for the calculation of the total net position in equity instruments in accordance with the standard market risk rules. The total net position in equity instruments shall be used to calculate the own funds requirements for general equity market risk in accordance with Article 343 of the Regulation. Market definition is based on a currency criterion, but only for euro area jurisdictions. For other legal systems, the term “market” is defined on the basis of a nationality criterion. The monetary criterion applied to the euro area takes into account the fact that the introduction of a single currency has addressed some important elements of segmentation between equity markets, such as the elimination of exchange rate risk, the existence of a common currency in which company results are reported or the existence of an integrated market with common rules. The European Banking Authority (EBA) today published its final draft of regulatory technical standards (RTS) defining the market and its final draft RTS on credit rating adjustment risk (CVA risk). The latter is complemented by an opinion on CVA risk, which develops the EBA`s approach to determining a proxy spread.
These standards will form part of the single rulebook to improve regulatory harmonisation in the European Union (EU) banking sector. Under the current CRDII, most jurisdictions have already implemented the nationality approach through the national transposition of the Directive. This approach is more conservative than the monetary criterion in terms of capital requirements. However, the monetary approach takes into account the increasing integration of financial markets. The final text of the CRR also mandates EBA to establish a set of methodologies to adequately reflect in own funds requirements all risks other than delta risks affecting the scale and complexity of institutions` warrant options and activities. Consultation procedure Comments on the consultation document on the definition of the term `market` can be submitted to the EBA until 31 October. August 2013 with reference number EBA/CP/2013/15 emailed to EBA-CPemail@example.com. RTRSY – RTRT – RTRU – RTRX – RTRZ – RTSA – RTSB – RTSC – RTSCI – RTSD The EBA opinion on CVA risk for the determination of a substitution spread identifies the main reasons why EBA has adopted a flexible approach to determine a substitution spread in the final version of the RTS. In particular, EBA questions the appropriateness of a common substitution method for market and CVA risks compared to another approach that would require the use of an alternative method solely for CVA purposes. However, the EBA recognises that this issue is part of the broader context of the overall stroke framework and that any possible solution should be further assessed in the light of its coherence with the Basel framework.
In accordance with Article 456(2), EBA shall be required to prepare a report to examine the appropriateness of certain features of the CVA framework and the relevance of the provisions of those regulatory technical standards in the light of issues arising from the implementation of the CVA fee. shows only Business & Finance definitions (show all 124 definitions) EBA has developed this final draft regulatory technical standards in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (commonly referred to as the Capital Requirements Regulation or CRR). In these draft RTS, the EBA consults two market definitions based on the following two criteria: nationality and currency. The nationality criterion is based on the assumption that the “general” risk arises from country-specific factors. The monetary criterion, on the other hand, would recognise that the introduction of a single currency into an already largely integrated EU single market has blurred these country-specific factors within the euro area. Note: We have 250 other definitions for RTS in our acronym Attic The meaning of RTS in Business is “Real Time Snstems”. There are 32 related meanings of the abbreviation RTS Business.