Question
Should a negative Weighted Average Maturity be permitted for derivative instruments in template J 05.00 (both contractual and behavioural)?
Background on the question
EBA Q&A 2024_7073 on Treatment of two-leg derivatives with respect to rate type and currency clarified the expectations for correctly reporting such instruments in templates J 02.00, J 03.00, J 04.00, J 05.00, J 06.00 and J 07.00. The final answer to the Q&A includes four concrete examples along with the corresponding expected representation of the notional amount, the repricing cash flows and yield in templates J 05.00, J 06.00 and J 07.00. However, the Q&A remains silent as far as the sign convention for the Weighted Average Maturity (WAM) in column 0060 and c0310 is concerned. The reporting instructions require to compute the WAM as the “Average contractual maturity measured in years weighted by the notional amount” (similarly to the yield). But unlike the yield, it is not clear whether it is meaningful to aggregate the maturities of paying and receiving legs of derivatives (and with which sign convention). In line with the additional instructions provided in EBA Q&A 2024_7073, the notional repricing cash flows of derivative instruments may be negative within the maturity buckets. As a result, the WAM calculation could, from a purely mathematical perspective, yield a negative value. However, from a business standpoint, a negative WAM might be irrelevant.
Answer
This question has been rejected because the issue it deals with is already explained or addressed in the regulatory framework, namely in the existing validation rules, which is sufficiently clear and unambiguous.