8. Size of the position to be excluded

The size of a position to be excluded in accordance with Article 352(2) of Regulation (EU) No 575/2013 should be determined in accordance with the following process:

• (a) by first calculating the maximum net open position in the relevant currency, in accordance with paragraph 31;
• (b) by then comparing the size of the structural position that the institution has taken for hedging the ratio and, depending on the size of that position, applying either paragraph 33 or paragraph 34.

The institution should calculate the maximum net open position in accordance with the following formulas:

• (a) where the institution aims at hedging the CET1 ratio, in accordance with the following formula:

𝑅𝑊𝐴 𝑁𝑜𝐹𝑋 𝐹𝐶 (1.01 ∙ 𝐹𝑋 𝐹𝐶 )−𝑅𝑊𝐴 𝑁𝑜𝐹𝑋 𝐹𝐶 (𝐹𝑋 𝐹𝐶 ) 𝑀𝑎𝑥𝑂𝑃 𝐹𝐶 = 𝐶𝐸𝑇1 ∙ 𝑅𝑊𝐴 0.01 𝑁𝑜𝐹𝑋 ∙ 𝐹𝐶 𝐹𝑋 (𝐹𝑋 𝐹𝐶 𝐹𝐶 )

where:

𝐹𝐶 = the currency of the structural position; 𝑀𝑎𝑥𝑂𝑃 𝐹𝐶 = the maximum net open position expressed in the foreign currency 𝐹𝐶 ;

𝐶𝐸𝑇1 = the Common Equity Tier 1 of the institution expressed in the reporting currency;

𝐹𝑋 𝐹𝐶 = the spot exchange rate between the reporting currency and the foreign currency 𝐹𝐶 of the structural position;

𝑅𝑊𝐴 𝑁𝑜𝐹𝑋 𝐹𝐶 (.) = the total risk exposure amount expressed in the reporting currency calculated in accordance with Article 92(3) of Regulation (EU) No 575/2013, excluding the own funds requirements for foreign exchange risk for all positions that are in the foreign currency 𝐹𝐶 ;

• (b) where the institution aims at hedging the Tier 1 ratio, in accordance with the following formula:

𝑅𝑊𝐴 𝑁𝑜𝐹𝑋 𝐹𝐶 (1.01 ∙ 𝐹𝑋 𝐹𝐶 )−𝑅𝑊𝐴 𝑁𝑜𝐹𝑋 𝐹𝐶 (𝐹𝑋 𝐹𝐶 ) 𝑀𝑎𝑥𝑂𝑃 𝐹𝐶 =𝑇1∗ 𝑅𝑊𝐴 0.01 𝑁𝑜𝐹𝑋 ∙ 𝐹𝐶 𝐹𝑋 (𝐹𝑋 𝐹𝐶 𝐹𝐶 ) −𝐴𝑇1 𝐹𝐶

where:

𝐹𝐶 = the currency of the structural position;

𝑀𝑎𝑥𝑂𝑃 𝐹𝐶 = the maximum net open position expressed in the foreign currency;

𝑇1 = the Tier 1 capital of the institution expressed in the reporting currency;

𝐹𝑋 𝐹𝐶 = the spot exchange rate between the reporting currency and the foreign currency 𝐹𝐶 ;

𝑅𝑊𝐴 𝑁𝑜𝐹𝑋 𝐹𝐶 (.) = the total risk exposure amount expressed in the reporting currency calculated in accordance with Article 92(3) of Regulation (EU) No 575/2013, excluding the own funds requirements for foreign exchange risk for all positions that are in the foreign currency 𝐹𝐶 ;

𝐴𝑇1 𝐹𝐶 = the value derived in accordance with the following formula:

where:

constituted by all Additional Tier 1 instruments issued by the institution;

• (c) where the institution aims at hedging the total capital ratio, in accordance with the following formula:

𝑀𝑎𝑥𝑂𝑃 𝐹𝐶 =𝑂𝐹∗ 𝑅𝑊𝐴 0.01 𝑁𝑜𝐹𝑋 ∙ 𝐹𝐶 𝐹𝑋 (𝐹𝑋 𝐹𝐶 𝐹𝐶 ) −𝐴𝑇1 𝐹𝐶 −𝑇2 𝐹𝐶

where:

𝑂𝐹 = the own funds of the institution expressed in the reporting currency;

𝑀𝑎𝑥𝑂𝑃 𝐹𝐶 = the maximum net open position expressed in the foreign currency;

𝑅𝑊𝐴 𝑁𝑜𝐹𝑋 𝐹𝐶 (.) = the total risk exposure amount expressed in the reporting currency calculated in accordance with Article 92(3) of Regulation (EU) No 575/2013, excluding the own funds requirements for foreign exchange risk for all positions that are in the foreign currency 𝐹𝐶 of the structural position;

𝐹𝑋 𝐹𝐶 = the spot exchange rate between the reporting currency and the foreign currency 𝐹𝐶 of the structural position;

𝐴𝑇1 𝐹𝐶 = the value derived in accordance with the following formula:

where:

𝑇2 𝐹𝐶 = the value derived in accordance with the following formula:

where:

𝑉 𝑇2 = the value of the portfolio expressed in the reporting currency constituted by all Tier 2 instruments issued by the institution.

Institutions may apply simplifications when calculating the maximum net open position in accordance with paragraph 31 only where they meet both of the following conditions:

• (a) they are able to show the effect of such simplifications on the value of the maximum net open position;
• (b) the effect of the simplifications referred to in point (a) does not represent an overestimation of the maximum net open position.

Where the size of the position that the institution has taken for hedging the ratio is lower than the maximum net open position, the whole structural position should be excluded from the calculation of the net open position.

Where the size of the position that the institution has taken for hedging the ratio exceeds the maximum net open position, only the portion of that structural position which corresponds in size to the maximum net open position should be excluded from the calculation of the net open position.

Positions corresponding to non-monetary items that are held at historical cost, items that have been deducted from the institution’s own funds and items that may lead to gains or losses that do not impact the CET1 capital should not be considered for the purpose of paragraph 33 and paragraph 34 and should be excluded from the calculation of the net open position in addition to the position that has been excluded in accordance with those paragraphs.