Question
Title IV Chapter 2 Section 6 and Article 364 (2) b CRR refers to positions in CIUs in general. How shall own funds requirements be calculated for derivative positions with CIUs as underlyings under the standardised approach?
Background on the question
Title IV Chapter 2 Section 6 and 364 (2) b CRR should be applicable to derivatives on CIUs, too. If there were a different treatment for derivatives, this might result in a disproportionate own funds requirements, because hedging relations would not be appropriately reflected. On the other hand, stand-alone positions in derivatives on CIUs would result in no or too small capital requirements.
Answer
According to section 1 of chapter 2 of Title IV of Part 3 of Regulation (EU) No 575/2013 (CRR), derivative positions should be treated as equivalent positions in the underlying instruments under that chapter as laid down in Articles 328 to 330. That logic also applies to CIUs, since they are a combination of some of those instruments under that chapter. In particular, options and warrants on CIUs, should be treated as the delta-equivalent amount of positions in the CIU. Once the corresponding position in the CIU, has been computed, institutions are to apply the standardised approach, in particular, the provisions applicable to CIUs (348 and 349) and in the case of options or warrants on CIUs, also the additional own funds requirements for non-delta risks.