6. Substantive admissibility of a request under Article 352(2) of Regulation (EU) No 575/2013

An open position in a foreign currency should be considered to be hedging the ratio where it reduces the adverse effect on that ratio caused by changes in the exchange rate, irrespective of whether that adverse effect derives from an appreciation or a depreciation of that foreign currency with respect to the reporting currency and irrespective of whether the position is maintained for hedging the ratio or taken for hedging the ratio.

The request for the permission referred to in Article 352(2) of Regulation (EU) No 575/2013 should specify which of the three ratios referred to in Article 92(a), (b) and (c) of Regulation (EU) No 575/2013 the institution aims to hedge and the rationale for the selection of that ratio. Currencies to which the hedging relates

The request by an institution to exempt positions should be made with regard to currencies that are relevant to the business of the institution.

For the purpose of paragraph 18, currencies that should be considered relevant to the business of the institution should be the five currencies for which the net open positions of the institution calculated in accordance with Article 352(1) of Regulation (EU) No 575/2013 are the largest.

Other currencies not meeting the condition referred to in paragraph 19 may be considered relevant where there is adequate justification supporting the relevance of the currency in the business of the institution.

Where an institution seeks the permission referred to in Article 352(2) of Regulation (EU) No 575/2013 with regard to positions in more than one relevant currency, both of the following should apply:

• (a) the same ratio as that referred to in paragraph 17 should be selected in the context of each of such currencies;
• (b) where calculating the maximum net open position referred to in paragraph 31 in the context of one currency, the institution should do it as if no waivers were granted for other currencies in accordance with Article 352(2) of Regulation (EU) No 575/2013 for positions in other currencies.

Positions eligible to be exempted

Non-trading book nature

A position in the foreign currency stemming from an item that is held in the trading book should not be considered as eligible to be exempted.

Long nature of the hedging position

In order for a position in a foreign currency to be considered eligible to be exempted, the numerator of the ratio hedged by that position should increase where the relevant foreign currency appreciates with respect to the reporting currency.

In order for a position in a foreign currency to be considered eligible to be exempted, that position should be net long at the level at which the institution computes the own funds requirements for market risk in accordance with Regulation (EU) No 575/2013. Where the institution computes the own funds requirements on a consolidated basis, paragraphs 25 and 26 also apply.

Where the institution computes the own funds requirements of Regulation (EU) No 575/2013 for market risk on a consolidated basis without having the permission referred to in Article 325 of Regulation (EU) No 575/2013, and the position is net short at the level of one or more of the institutions within the group, the position in those institutions should be managed for the sole purpose of hedging the ratio to be considered eligible for the exemption.

Where the institution computes the own funds requirements of Regulation (EU) No 575/2013 for market risk on a consolidated basis having the permission referred to in Article 325 of Regulation (EU) No 575/2013, and the position is net short at the level of either any subsets of institutions in the group within which the positions are offset as specified in that permission, or at the level of any other of the institutions within the group which are not included in that permission, the position in those subsets of institutions or in the other institutions outside the permission should be managed for the sole purpose of hedging the ratio to be considered eligible for the exemption.