20. Impact of rating change on market prices

Gli enti devono definire gli orizzonti di liquidità a livello di prodotto anziché a livello di emittente. Per le singole posizioni il relativo orizzonte di liquidità può variare in base al tipo di prodotto (e alla sua complessità) e all'emittente.

Tuttavia, tenuto conto dei problemi pratici derivanti da una valutazione interamente granulare dell'orizzonte di liquidità a livello di prodotto, considerando la vasta gamma di prodotti detenuta nei portafogli di negoziazione, gli orizzonti di liquidità possono essere inizialmente definiti su base aggregata, per esempio a livello di emittente.

Gli enti sono tuttavia tenuti a verificare e documentare la gamma di prodotti connessa a ogni emittente e garantire che l'orizzonte di liquidità definito a livello aggregato sia adeguato anche per il prodotto meno liquido.

23. Criteri fondamentali per la determinazione del relativo orizzonte di liquidità.

In the case of a rating migration, the variation of market prices should be recalculated. Full revaluation should be required unless an institution can prove that its pricing approach sufficiently reflects even the large price changes that are to be expected from a change in rating. This may be done as a pre-calculation in the sense that a vector of prices for each rating state might be an input in an IRC calculation. The impact of a rating migration on market prices should be estimated using either currently observed market data (e.g. spreads); or an average of historical market data observed over a maximum period of one year or any other relevant period

17 subject to approval by competent authorities. Historical PDs should not be used for discounting purposes when performing a full revaluation upon a rating change as they do not sufficiently reflect current market prices.

Positions migrating into the default state should be valued on the basis of the recovery rate or the loss given default rate. The recovery rate should be applied to the notional value of the position unless the estimates are derived relative to the market values of positions. It has to be shown to the satisfaction of the competent authorities that the estimate is appropriately differentiated for different categories of obligors and instruments. Calculations should be coherent between instruments. Any other approach should be duly justified and documented, in particular if generic market LGDs are used, and the institution should have a documented process in place describing on which criteria LGDs for individual positions are to be adjusted.

The model should capture divergences arising from differences in credit event definition, seniority in the capital structure or exposure to different entities within a group. This could, for example, be implemented through the use of stochastic recovery rates. Defaulted bonds are in principle included in the IRC portfolio if they are in the trading book (cf. Paragraph 4.5). Therefore, the model should capture the risk that post-default LGD marks or realisations may diverge from their pre-default estimates. The initial LGD or recovery rate applied to individual defaulted positions would have to be updated with the same frequency for the IRC as for the P&L calculation and the LGDs must be in line with the numbers used for the P&L calculation.