Question
In accordance with Article 325e of Regulation (EU) No 575/2013 (CRR), all the positions of instruments with optionality (among others: calls, puts, caps, floors, swap options, barrier options and exotic options) shall be subject to the own funds requirements for: a) delta risk b) vega risk c) curvature risk. According to Q&A Q&A 2571 published on 11th November 2016, perfectly matching options should not be subject to own funds requirements for market risk. Does this also apply to the sensitivities-based method for calculating the own funds requirement for market risk specified in CRR2/CRR3? If yes, does it mean that perfectly matched back-to-back bought and sold options can be excluded from the calculation of the own funds requirement for market risk under sensitivities-based method (delta, vega and curvature risk)?
Background on the question
Q&A 2571 published in Single Rulebook Q&A on 11th November 2016) states that perfectly matching options should not be subject to market capital requirements.
Answer
Perfectly matching bought and sold options are included in the scope of the own funds requirements for delta, vega and curvature risk under the SbM. In accordance with Article 325u(4), point (c), of Regulation (EU) No 575/2013 (CRR), perfectly matching positions are excluded from the scope of the own funds requirements for residual risks (RRAO). Given that they are explicitly referred to in the context of the RRAO as excluded, but not explicitly mentioned or excluded in the context of the sensitivities-based method (SbM) or the own funds requirements for default risk (DRC), both the own funds requirements under the SbM and the DRC (where applicable) have to be the determined for such positions. Sensitivities and Jump-to-default-amounts may then be netted in line with the provisions of the CRR.