1.For the purposes of paragraph 2, institutions shall establish the relevant equity reference entities of the netting set in accordance with the following:
there shall be one equity reference entity for each issuer of a reference equity instrument that underlies a single-name transaction allocated to the equity risk category; single-name transactions shall be assigned to the same equity reference entity only where the underlying reference equity instrument of those transactions is issued by the same issuer;
there shall be one equity reference entity for each group of reference equity instruments or single-name equity derivatives that underlie a multi-name transaction allocated to the equity risk category; multi-names transactions shall be assigned to the same equity reference entity only where the group of underlying reference equity instruments or single-name equity derivatives of those transactions, as applicable, has the same constituents.
2.For the purposes of Article 278, institutions shall calculate the equity risk category add-on for a given netting set as follows:
\mathrm{AddOn}^{\mathrm{Equity}} = \sum_{j} \mathrm{AddOn}_{j}^{\mathrm{Equity}}
where:
AddOnEquity = the equity risk category add-on; |
j = the index that denotes all the equity risk hedging sets established in accordance with point (d) of Article 277a(1) and Article 277a(2) for the netting set; and |
\mathrm{AddOn}_j^{\mathrm{Equity}} = the equity risk category add-on for hedging set j calculated in accordance with paragraph 3. |
3.Institutions shall calculate the equity risk category add-on for hedging set j as follows:
\mathrm{AddOn}_j^{\mathrm{Equity}} = \epsilon_j \sqrt{\left(\sum_k \rho_k^{\mathrm{Equity}} \cdot \mathrm{AddOn}(\mathrm{Entity}_k)\right)^2 + \sum_k \left(1 - (\rho_k^{\mathrm{Equity}})^2\right) \cdot (\mathrm{AddOn}(\mathrm{Entity}_k))^2}
where:
\mathrm{AddOn}_j^{\mathrm{Equity}} = the equity risk category add-on for hedging set j; |
єj = the hedging set supervisory factor coefficient of hedging set j determined in accordance with Article 280; |
k = the index that denotes the equity reference entities of the netting set established in accordance with paragraph 1; |
[IMAGE_1] = the correlation factor of the equity reference entity k; where the equity reference entity k has been established in accordance with point (a) of paragraph 1, [IMAGE_2]; where the equity reference entity k has been established in accordance with point (b) of paragraph 1, [IMAGE_3]; and |
AddOn(Entityk) = the add-on for the equity reference entity k determined in accordance with paragraph 4. |
4.Institutions shall calculate the add-on for the equity reference entity k as follows:
\mathrm{AddOn}(\mathrm{Entity}_{k}) = \mathrm{SF}_{k}^{\mathrm{Equity}} \cdot \mathrm{EffNot}_{k}^{\mathrm{Equity}}
where:
AddOn(Entityk) = the add-on for the equity reference entity k; |
[IMAGE_1] = the supervisory factor applicable to the equity reference entity k; where the equity reference entity k has been established in accordance with point (a) of paragraph 1, [IMAGE_2]; where the equity reference entity k has been established in accordance with point (b) of paragraph 1, [IMAGE_3]; and |
[IMAGE_1] = the effective notional amount of the equity reference entity k calculated as follows: [IMAGE_2] where: l = the index that denotes the risk position. |