B. TREATMENT OF THE PROTECTION BUYER

For the party who transfers credit risk (the ‘protection buyer’), the positions are determined as the mirror image of the protection seller, with the exception of a credit linked note (which entails no short position in the issuer). If at a given moment there is a call option in combination with a step‐up, such moment is treated as the maturity of the protection. In the case of n^(th) to default credit derivatives, protection buyers are allowed to off‐set specific risk for n-1 of the underlyings (i.e., the n-1 assets with the lowest specific risk charge). Institutions which mark to market and manage the interest‐rate risk on the derivative instruments covered in points 4 to 7 on a discounted‐cash‐flow basis may use sensitivity models to calculate the positions referred to in those points and may use them for any bond which is amortised over its residual life rather than via one final repayment of principal. Both the model and its use by the institution must be approved by the competent authorities. These models should generate positions which have the same sensitivity to interest‐rate changes as the underlying cash flows. This sensitivity must be assessed with reference to independent movements in sample rates across the yield curve, with at least one sensitivity point in each of the maturity bands set out in Table 2 of point 20. The positions shall be included in the calculation of capital requirements according to the provisions laid down in points 17 to 32. Institutions which do not use models under point 9 may, with the approval of the competent authorities, treat as fully offsetting any positions in derivative instruments covered in points 4 to 7 which meet the following conditions at least: the positions are of the same value and denominated in the same currency; the reference rate (for floating‐rate positions) or coupon (for fixed‐rate positions) is closely matched; and the next interest‐fixing date or, for fixed coupon positions, residual maturity corresponds with the following limits: less than one month hence: same day; between one month and one year hence: within seven days; and over one year hence: within 30 days. The transferor of securities or guaranteed rights relating to title to securities in a repurchase agreement and the lender of securities in a securities lending shall include these securities in the calculation of its capital requirement under this Annex provided that such securities meet the criteria laid down in Article 11. The position risk on a traded debt instrument or equity (or debt or equity derivative) shall be divided into two components in order to calculate the capital required against it. The first shall be its specific‐risk component — this is the risk of a price change in the instrument concerned due to factors related to its issuer or, in the case of a derivative, the issuer of the underlying instrument. The second component shall cover its general risk — this is the risk of a price change in the instrument due (in the case of a traded debt instrument or debt derivative) to a change in the level of interest rates or (in the case of an equity or equity derivative) to a broad equity‐market movement unrelated to any specific attributes of individual securities.

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Source: EUR-Lex (Cellar) · retrieved 2026-10-10 · Text as adopted (Official Journal); later amendments are not incorporated in this text.