Question
According to the Article 94 of Regulation (EU) No 575/2013 (CRR) there is a possibility to calculate capital requirement in accordance with Article 92(3) point (a) CRR in respect of institution’s trading-book business. But the calculation of trading-book business is not enough precisely mentioned in Article 94 CRR. Should institution calculate this trading-book business based: (1) on overnight positions (as at the end of business day) or (2) on daily turnover in financial instruments?
Background on the question
Lack of clarity under Article 94.
Answer
Article 94 of Regulation (EU) No 575/2013 (CRR) offers institutions with a small trading book business the option to replace their trading-book capital requirements referred to in Article 92(3)(b) with the capital requirement calculated under Article 92(3)(a). Article 94 details the conditions that institutions must meet to qualify as a small trading book business (namely that it is normally less than 5% of the total assets and EUR 15 million, and that it never exceeds 6% of total assets and EUR 20 million), and how the size of their on- and off-balance sheet business is calculated (Article 94(2)). For the purposes of Article 94, in calculating the size of the on- and off-balance sheet trading-book business, institutions should use the end of business-day positions and market values of financial instruments.