Annex II – Market risk sub-categories

The risk of losses arising from changes in the market value of debt instruments due to a change in the level of interest rates unrelated to any specific attributes of those individual debt instruments.

Relevant legal references for capital treatment: > Pre-Fundamental Review of the Trading Book (FRTB) – internal models General interest Regulation (EU) 575/2013, Part Three, Title IV, Chapter 5 – Article 362 rate risk > Pre-FRTB – Standardised Approach /Post-FRTB – Simplified Standardised Approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 2, Section 2, Subsection 2 – Articles 339-340 (general risk of debt instruments) (trading book) > Post-FRTB – Alternative Standardised Approach

Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1a, Section 2 – Articles 325d-325k (sensitivity-based method, general interest rate risk) > Post-FRTB – Alternative internal model approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1b – Articles 325az-325bp (expected shortfall /Stress Scenario Risk Measure (SSRM) component)

The risk arising from changes in the market value of debt financial instruments due to fluctuations in their credit spread (please refer Credit spread risk to ‘ Definitions ’ , Title 1).

(trading book) - Capital treatment differentiated by type of instrument/portfolio: 1) Credit spread risk of non-securitisations Market risk sub- Legal references/Definitions⁶³

2) Credit spread risk of securitisations (outside the alternative correlation trading portfolio (ACTP)) 3) Credit spread risk of securitisations included in the ACTP

• - Also covers sovereign risk (i.e. risk of losses due to decreasing market values of sovereign exposures)

Relevant legal references for capital treatment > Pre-FRTB – internal models Regulation (EU) 575/2013, Part Three, Title IV, Chapter 5 CRR – Article 362 (Value at Risk (VaR) - component; and additional ACTP component ( ‘ comprehensive risk measure ’ ) for positions in the ACTP) > Pre-FRTB – Standardised Approach /Post-FRTB - Simplified Standardised Approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 2, Section 2, Subsection 1 – Articles 335-338 (specific risk of debt instruments) > Post-FRTB – Alternative Standardised Approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1a, Section 2 – Articles 325d-325k (sensitivity-based method, credit spread risk (CSR) non-securitisation, CSR securitisation non-ACTP, CSR securitisation-ACTP) > Post-FRTB – Alternative internal model approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1b – Articles 325az-325bp (expected shortfall/SSRM component)

The risk of a change in the market value of an instrument due to a broad equity-market movement or due to factors related to the issuer of the instrument or, in the case of a derivative, the issuer of the underlying instrument.

Equity risk Relevant legal references for capital treatment > Pre-FRTB – internal models (trading book) Regulation (EU) 575/2013, Part Three, Title IV, Chapter 5 – Article 362 CRR > Pre-FRTB – Standardised Approach /Post-FRTB – Simplified Standardised Approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 2, Section 3 – Articles 341-344 (general risk of equity instruments + specific risk of equity instruments) Market risk sub- Legal references/Definitions⁶³

> Post-FRTB – Alternative Standardised Approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1a, Section 2 – Articles 325d-325k (sensitivity-based method, risk class equity risk) > Post-FRTB – Alternative internal model approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1b – Articles 325az-325bp (expected shortfall/SSRM component)

The risk of loss on financial instruments due to the deterioration of the creditworthiness of the issuer or of the issuer of reference assets or underlying assets. This excludes default risk. Under FRTB this risk is treated as part of credit spread risk.

Relevant legal references for capital treatment Migration risk > Pre-FRTB – internal models

Regulation (EU) 575/2013, Part Three, Title IV, Chapter 5, Section 4 – Articles 372-376 > Post-FRTB – Alternative Standardised Approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1a, Section 2 – Articles 325d-325k > Post-FRTB – Alternative internal model approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1b – Articles 325az-325bp

The risk of loss on financial instruments due to the default of the issuers of those financial instruments or of the issuers of reference or of underlying assets. Also covers sovereign risk, i.e. risk of losses due to the default of sovereign exposures.

Default risk Relevant legal references for capital treatment

(trading book) > Pre-FRTB – internal models Regulation (EU) 575/2013, Part Three, Title IV, Chapter 5 – Articles 372-376 ( ‘ Incremental default risk charge ’ -component) > Post-FRTB – Alternative Standardised Approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1a, Section 5 – Articles 325v-325ad Market risk sub- Legal references/Definitions⁶³

> Post-FRTB – Alternative internal model approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1b – Articles 325az-325bp (default risk charge)

Regulation (EU) 575/2013, Article 4(1), point (142) – includes, among others, translation risk and structural foreign exchange risk

Relevant legal references for capital treatment I) Exemption for Structural Foreign Exchange positions (S-FX positions)

• - Regulation (EU) 575/2013, Article 104c
• - Guidelines on S-FX (EBA/2020/09)

Foreign exchange risk II) Treatment of positions other than S-FX positions > Pre-FRTB – internal models (trading and Regulation (EU) 575/2013, Part Three, Title IV, Chapter 5 – Articles 362-377 banking books) > Pre-FRTB – Standardised Approach /Post-FRTB – Simplified Standardised Approach

Regulation (EU) 575/2013, Part Three, Title IV, Chapter 3 – Articles 351-354 > Post-FRTB – Alternative Standardised Approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1a, Section 2 – Articles 325d-325k (sensitivity-based method, risk class foreign exchange risk) > Post-FRTB – Alternative internal model approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1b Articles 325az-325bp (expected shortfall/SSRM component)

Commodities risk Regulation (EU) 575/2013, Article 4(1), point (143)

(trading and Relevant legal references for capital treatment banking books) > Pre-FRTB – internal models Market risk sub- Legal references/Definitions⁶³

Regulation (EU) 575/2013, Part Three, Title IV, Chapter 5 – Articles 362-377 > Pre-FRTB – Standardised Approach /Post-FRTB - Simplified Standardised Approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 4 – Articles 351-354 > Post-FRTB – Alternative Standardised Approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1a, Section 2 – Articles 325d-325k (sensitivity-based method, risk class commodities risk) > Post-FRTB – Alternative internal model approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1b – Articles 325az-325bp (expected shortfall/SSRM component)

Credit valuation Regulation (EU) 575/2013 , Article 381

(trading and

Market risk sub- Legal references/Definitions⁶³

Regulation (EU) 575/2013 , Article 325u and RTS on Residual Risk Add-on (Regulation (EU) 2022/2328) – comprises the broad categories of risks arising from instruments with exotic underlying and residual risk of instruments bearing other residual risks

Residual risk Relevant legal references for capital treatment > Post-FRTB – Alternative Standardised Approach Regulation (EU) 575/2013, Part Three, Title IV, Chapter 1a, Section 4 – Article 325u

Market risk: Model Regulation (EU) 575/2013, Article 4(1), point (52b)

• - Delta risk (risk of changes of the value of a financial instrument due to a change in the value of the risk factor (first order effects)) Market risk: Risks - Vega risk (risk arising from changes of the volatility of the underlying of a non-linear instrument) by linearity - Curvature risk (including gamma risk) (risks not captured under delta and vega risk, including risk arising from second order effects of changes in the underlying and from other parameters of options)

Market risk: The risk that the institution will incur market/liquidity losses stemming from a concentration either from exposures to a single risk Market liquidity factor or from exposures to multiple risk factors that are correlated, or from instruments with high liquidity horizons and concentration

Market risk: Basis Risk of losses due to imperfect correlation in the value change of nominally offsetting instruments risk