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Article 1 Methodology for calculating Additional Valuation Adjustments (AVAs)

Institutions shall calculate the total additional valuation adjustments ("AVAs") necessary to adjust the fair values to the prudent value and shall calculate those AVAs quarterly according to the method provided in Chapter 3, unless they meet the conditions for applying the method provided in Chapter 2.

Article 2 Definitions

For the purpose of this Regulation the following definitions shall apply:

  1. (a)

    "valuation position" means a financial instrument or commodity or portfolio of financial instruments or commodities held in both trading and non-trading books, which are measured at fair value;

  2. (b)

    "valuation input" means a market observable or non-observable parameter or matrix of parameters that influences the fair value of a valuation position;

  3. (c)

    "valuation exposure" means the amount of a valuation position which is sensitive to the movement in a valuation input.

Article 3 Sources of market data

  1. (1)

    Where institutions calculate AVAs based on market data, they shall consider the same range of market data as the data used in the independent price verification ("IPV") process referred to in Article 105(8) of Regulation (EU) No 575/2013, as relevant, subject to the adjustments described in this Article.

  2. (2)

    Institutions shall consider a full range of available and reliable market data sources to determine a prudent value including each of the following, where relevant:

    1. (a)

      exchange prices in a liquid market;

    2. (b)

      trades in the exact same or very similar instrument, either from the institution's own records or, where available, trades from across the market;

    3. (c)

      tradable quotes from brokers and other market participants;

    4. (d)

      consensus service data;

    5. (e)

      indicative broker quotes;

    6. (f)

      counterparty collateral valuations.

  3. (3)

    For cases where an expert-based approach is applied for the purpose of Articles 9, 10 and 11, alternative methods and sources of information shall be considered. including each of the following, where relevant:

    1. (a)

      the use of proxy data based on similar instruments for which sufficient data is available;

    2. (b)

      the application of prudent shifts to valuation inputs;

    3. (c)

      the identification of natural bounds to the value of an instrument.