# Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (Text with EEA relevance), Article 338: Own funds requirement for the correlation trading portfolio

Extent: E+W+S+N.I.

1 . The correlation trading portfolio shall consist of securitisation positions and n-th-to-default credit derivatives that meet all of the following criteria:
( a ) the positions are neither re-securitisation positions, nor options on a securitisation tranche, nor any other derivatives of securitisation exposures that do not provide a pro-rata share in the proceeds of a securitisation tranche;
( b ) all reference instruments are either of the following:
(i) single-name instruments, including single-name credit derivatives, for which a liquid two-way market exists;
(ii) commonly-traded indices based on those reference entities.
A two-way market is deemed to exist where there are independent bona fide offers to buy and sell so that a price reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be determined within one day and settled at such price within a relatively short time conforming to trade custom.
2 . Positions which reference any of the following shall not be part of the correlation trading portfolio:
( a ) an underlying that is capable of being assigned to the exposure class ‘ retail exposures ’ or to the exposure class ‘ exposures secured by mortgages on immovable property ’ under the Standardised Approach for credit risk in an institution's non-trading book;
( b ) a claim on a special purpose entity, collateralised, directly or indirectly, by a position that would itself not be eligible for inclusion in the correlation trading portfolio in accordance with paragraph 1 and this paragraph.
3 . An institution may include in the correlation trading portfolio positions which are neither securitisation positions nor n-th-to-default credit derivatives but which hedge other positions of that portfolio, provided that a liquid two-way market as described in the last subparagraph of paragraph 1 exists for the instrument or its underlyings.
4 . An institution shall determine the larger of the following amounts as the specific risk own funds requirement for the correlation trading portfolio:
( a ) the total specific risk own funds requirement that would apply just to the net long positions of the correlation trading portfolio;
( b ) the total specific risk own funds requirement that would apply just to the net short positions of the correlation trading portfolio.

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Source: https://www.legislation.gov.uk/eur/2013/575/article/338 (the official version)
Page: https://openlegislation.uk/eu-regulation-2013-575/article-338
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.