Article 325j
Treatment of collective investment undertakings
1.
An institution shall calculate the own funds requirements for market risk of a position in a CIU using one of the following approaches:
(a)
where an institution is able to obtain sufficient information about the individual underlying exposures of the CIU, the institution shall calculate the own funds requirements for market risk of that CIU position by looking through to the underlying positions of the CIU as if those positions were directly held by the institution;
(b)
where the institution is not able to obtain sufficient information about the individual underlying exposures of the CIU, but the institution has knowledge of the content the mandate of the CIU and daily price quotes for the CIU can be obtained, the institution shall calculate the own funds requirements for market risk of that CIU position by using one of the following approaches:
(i)
the institution may consider the position in the CIU as a single equity position allocated to the bucket ‘other sector’ in Table 8 of Article 325ap(1);
(ii)
upon permission from its competent authority, an institution may calculate the own funds requirements for market risk of the CIU in accordance with the limits set in the CIU’s mandate and relevant law;
(c)
where the institution meets neither the conditions in point (a) nor (b), the institution shall allocate the CIU to the non-trading book.
An institution that uses one of the approaches set out in point (b) shall apply the own funds requirement for the default risk set out in Section 5 of this Chapter and the residual risk add-on set out in Section 4 of this Chapter where the mandate of the CIU implies that some exposures in the CIU shall be subject to those own funds requirements.
An institution that uses the approach set out in point (ii) of point (b) may calculate the own funds requirements for counterparty credit risk and own funds requirements for credit valuation adjustment risk of derivative positions of the CIU, using the simplified approach set out in paragraph 3 of Article 132a.
2.
By way of derogation from paragraph 1, where an institution has a position in a CIU that tracks an index benchmark so that the annualised return difference between the CIU and the tracked index benchmark over the last 12 months is below 1 % in absolute terms, ignoring fees and commissions, the institution may treat that position as a position in the tracked index benchmark. An institution shall verify compliance with that condition when the institution enters into the position and, after that, at least annually.
However, where data for the last 12 months are not fully available, an institution may, subject to permission from the institution’s competent authority, use an annualised return difference from a period shorter than 12 months.
3.
An institution may use a combination of the approaches referred to in points (a), (b) and (c) of paragraph 1 for its positions in CIUs. However, an institution shall use only one of those approaches for all the positions in the same CIU.
4.
For the purposes of point (b) of paragraph 1, an institution shall carry out the calculations under the following provisions:
(a)
for the purposes of calculating the own funds requirement under the sensitivities-based method set out in Section 2 of this Chapter, the CIU shall first take position to the maximum extent allowed under its mandate or relevant law in the exposures attracting the highest own funds requirements set out under that Section and shall then continue taking positions in descending order until the maximum total loss limit is reached;
(b)
for the purposes of the own fund requirements for the default risk set out in Section 5 of this Chapter, the CIU shall first take position to the maximum extent allowed under its mandate or relevant law in the exposures attracting the highest own funds requirements set out under that Section and shall then continue taking positions in descending order until the maximum total loss limit is reached;
The own funds requirements for all positions in the same CIU for which the calculations referred to in the first subparagraph are used shall be calculated on a stand-alone basis as a separate portfolio using the approach set out in this Chapter.
5.
An institution may use the approaches referred to in point (a) or (b) of paragraph 1 only where the CIU meets all the conditions set out in Article 132(3) and point (a) of Article 132(4).