AI Summary of Article 325i Treatment of index instruments and other multi-underlying instruments
This document outlines the regulatory framework for institutions using a look-through approach when managing index and multi-underlying instruments. Institutions must calculate delta and curvature risk by treating individual positions in the underlying constituents, with specific provisions for indices within the Advanced Valuation and Capital Treatment Process (ACTP). Furthermore, institutions can net sensitivities for both single-name and multi-underlying positions, with distinct guidelines for vega risk sensitivity assignments.
Institutions may opt to use a consistent methodology when calculating sensitivities for equity or credit indices, provided they comply with outlined conditions, including index composition and market capitalisation. A transition between methodologies requires prior authority approval.
Article 325i Treatment of index instruments and other multi-underlying instruments
1. Institutions shall use a look-through approach for index and other multi-underlying instruments in accordance with the following:
(a) for the purposes of calculating the own funds requirements for delta and curvature risk, institutions shall consider that they hold individual positions directly in the underlying constituents of the index or other multi-underlying instruments, except for a position in an index included in the ACTP for which they shall calculate a single sensitivity to the index;
(b) institutions are allowed to net the sensitivities to a risk factor of a given constituent of an index instrument or other multi-underlying instrument with the sensitivities to the same risk factor of the same constituent of single name instruments, except for positions included in the ACTP;