Commission Delegated Regulation (EU) 2022/2328 of 16 August 2022 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards specifying exotic underlyings and the instruments bearing residual risks for the purposes of the calculation of own funds requirements for residual risks (Text with EEA relevance)

• CELEX: Delegated Regulation (EU) 2022/2328
• Articles: 5

Article 1 Specification of exotic underlyings

Longevity risk, weather, natural disasters and future realised volatility shall be considered as exotic underlyings for the purposes of Article 325u(2), point (a), of Regulation (EU) No 575/2013.

Article 2 Specification of instruments bearing residual risks

The instruments listed in the Annex to this Regulation shall be considered as instruments meeting the conditions set out in Article 325u(2) of Regulation (EU) No 575/2013 and constituting instruments bearing residual risks.

Article 3 Specification of instruments without presumption of bearing residual risks

An instrument shall not be considered as meeting the conditions set out in Article 325u(2), points (b)(i) and (ii) of Regulation (EU) No 575/2013 solely on the grounds that it bears one or more of the following risks:

(a)

risk arising from transactions where the delivery obligation can be fulfilled within a range of deliverable instruments and where the counterparty has the possibility to deliver the least valuable of those instruments;

(b)

risk of a change in the implied volatility of an instrument with optionality, relative to the implied volatility of other instruments with optionality with the same underlying and maturity, but different moneyness;

(c)

correlation risk arising from an index option, where the index meets the conditions set out in Article 325i(3) of Regulation (EU) No 575/2013;

(d)

correlation risk arising from an option in a collective investment undertaking tracking an index benchmark, where the tracking meets the conditions set out in Article 325j(2) of Regulation (EU) No 575/2013 and the index meets the conditions set out in Article 325i(3) of that Regulation;

(e)

dividend risk arising from a derivative instrument whose underlying does not consist solely of dividend payments.

Article 4 Entry into force

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union .

Schedules & Appendices

ANNEX List of instruments bearing residual risks referred to in Article 2

ANNEX

List of instruments bearing residual risks referred to in Article 2

The instruments referred to in Article 2 shall be any of the following:

1.

options where the pay-offs depend on the path followed by the price of the underlying asset and not just its final price on the exercise date;

2.

options that start at a predefined date in the future and whose strike price is not yet determined at the time at which the option is in the trading book of the institution;

3.

options whose underlying is another option;

4.

options with discontinuous pay-offs;

5.

options allowing the holder to modify the strike price or other terms of the contract before the maturity of the options;

6.

options that can be exercised on a finite set of predetermined dates;

7.

options whose underlying is denominated in one currency but whose pay-offs are settled in a different currency, with a predetermined exchange rate between the two currencies;

8.

multi-underlying options, excluding those referred to in Article 3, points (c) and (d);

9.

options subject to behavioural risk, only where all of the following conditions are met:

(a)

the option lies with a retail client;

(b)

a significant amount of these options are held in the trading book;

(c)

the behavioural risk of these options is assessed by the institution to be material.