Annex V

United Kingdom

‘ANNEX V

MARKET BENCHMARKING PORTFOLIOS

COMMON INSTRUCTIONS

An institution shall apply all of the following:

(a)

Unless explicitly specified otherwise in the portfolio description, all positions shall be booked on 13 October 2016. Once positions have been booked, each portfolio shall age for the duration of the benchmarking exercise. Furthermore, calculations shall be made under the assumption that the institution will not take any action to manage the portfolio during the entire period of the benchmarking exercise. Unless explicitly stated otherwise in the specifications for a particular portfolio, strike prices for option positions shall be determined relative to prices for the underlying as observed at market close on 13 October 2016;

(b)

for the purpose of the pre-benchmarking exercise validation, the valuation of each portfolio shall be submitted to the institution's competent authority by [date of entry into force]. Initial Market Valuation (IMV) means the sum of the market value at the booking date and of the unrealised balance (i.e. profit or loss that has been made but not yet realised or that would be realised if the position would be closed out (or ‘unwound’)) between the booking date and the valuation date and time. Therefore, IMV means the mark-to-market value on the valuation date and time. The valuation shall be performed on 27 October 2016, 5.30 pm CET (4.30 pm GMT);

(c)

the risks of the positions shall be calculated without taking into account the funding costs;

(d)

to the extent possible, counterparty credit risk shall be excluded when valuing the risks of the portfolios;

(e)

the 10-day 99 % VaR shall be calculated on a daily basis. Stressed Value-at-Risk (‘sVaR’) and the Incremental Risk Charge (‘IRC’) may be calculated on a weekly basis. sVaR and IRC shall be based on end–of-day prices for each Friday in the time window of the benchmarking exercise;

(f)

for each portfolio, results in the base currency of the portfolio, as required in the tables below, shall be provided;

(g)

for transactions that include long positions in Credit Default Swaps (‘CDS’), it shall be assumed that an immediate up-front fee is paid to enter the position as per the market conventions. It shall be assumed that the maturity dates for all CDS positions in the exercise follow conventional quarterly termination dates;

(h)

additional specifications needed in order to carry out pricing calculations required for CDS positions shall be done in a way that is consistent with commonly used market standards and conventions;

(i)

the maturity date that ensures that the transaction is closest to the term-to-maturity specified shall be used;

(j)

for material details of the product specification that are not explicitly stated in this Annex, the assumptions that have been used, including day count convention, and the choice for a tradable and liquid instrument where permitted, shall be provided along with the results;

(k)

the abbreviations ATM, OTM and ITM refer to the relative position of the current or future price of a derivative's underlying asset with respect to the strike price of that derivative (‘moneyness’). ATM stands for ‘at the money’, OTM stands for ‘out of the money’, and ITM stands for ‘in the money’;

(l)

all options shall be treated as if they are traded over-the-counter (‘OTC’), unless explicitly specified otherwise in the portfolio;

(m)

the standard timing conventions for OTC options shall be followed (i.e. expiry dates are the business day following a non-trading day). The timing convention for options shall be as follows: the time to maturity for a n-month option shall be n months. Where options expire on a non-trading day, institutions shall adjust the expiration date per business day, in accordance with common market practices;

(n)

all OTC options shall be treated as follows:

as American for single name equities and commodities;

as European for equity indices, foreign exchange and swaptions;

(o)

for all options, the premium from the initial market value calculations shall be excluded, so that options shall be considered as ‘naked’;

(p)

regarding the Correlation Trading Portfolio (CTP), IM stands for Risk Measures resulting from Internal Model calculations for CTP in accordance with Article 377 of Regulation (EU) No 575/2013. It is indicated as All Price Risk (APR) in Annex VI to this Implementing Regulation;

(q)

for the positions denominated in a common base currency but composed of one or more instruments denominated in a different currency, the Initial Market Valuation (‘IMV’) shall be converted in the common portfolio base currency using the appropriate foreign exchange (‘FX’) spot rate at the end of the booking date (13 October 2016). The same common portfolio base currency that was used to convert the IMV shall be used for profit-and-loss results (‘P&L’) and risk and stressed measures (VaR, sVaR, IRC, APR) by using the corresponding and appropriate FX rate;

(r)

when booking all positions, institutions shall follow appropriate market conventions unless otherwise specified. In the following sections, ‘long’ means ‘buy’ and ‘short’ means ‘sell’. For CDS positions, ‘long’ means ‘buy protection’ and ‘short’ means ‘sell protection’, following standard market practice;

(s)

where an instrument is subject to a corporate action including a call from the issuer, or a default or similar actions, institutions shall exclude that instrument from the portfolio together with any related CDS or option;

(t)

‘on-the-run’ referring to an Index series means the most liquid and tradable series of that specific index available on the market. Institutions shall communicate their choice of the Index series along with the related results in the appropriate text cell in the templates;

(u)

the Euro Interbank Offered Rate (‘EURIBOR’) is the rate calculated by the European Money Markets Institute at different maturities for Euro interbank term deposits;

(v)

the London Interbank Offered Rate (‘LIBOR’) is the rate calculated by the Intercontinental Exchange at different maturities for interbank term deposits in different currencies;

Section 1: Non-Correlation Trading Portfolios

Portfolio numberRisk factor Portfolios Currency Risk Metrics requested
Equity Portfolios

1

Equity

Equity index futures

Long delta

Long 30 contracts ATM*, last trading date 17 March 2017, delivery date 20 March 2017, FTSE 100 index futures (1 contract = 10 underlying)

*

The futures price is based on the index level at NYSE Liffe London market close on 13 October 2016.

GBP VaR and sVaR

2

Equity

Bullish leveraged trade

Long gamma and long vega

Long 100 contracts OTC Apple (AAPL US Equity) OTM* 6-month call options (1 contract = 100 shares underlying)

*

The strike price is out-of-the-money by 10 % relative to the stock price at market close on 13 October 2016.

USD VaR and sVaR

3

Equity

Volatility trade #1

Short short-term vega & long long-term vega

Short straddle 6-month ATM* S&P 500 Index OTC options (30 contracts; 1 contract = 100 underlying)

Long straddle 2-year ATM* S&P 500 Index OTC options (30 contracts; 1 contract = 100 underlying)

*

The strike price is based on the index level at NYSE at 4:30 pm New York on 13 October 2016.

USD VaR and sVaR

4

Equity

Volatility trade #2 (smile effect)

Long/short puts on FTSE 100

Long 40 contracts of put options on FTSE 100 index (with a strike price that is 10 % OTM* based on the end-of-day index value), last trading date 17 March 2017, delivery date 20 March 2017 (1 contract = 10 underlying)

Short 40 contracts of put options on FTSE 100 index (with a strike price that is 10 % ITM* based on the end-of-day index value), last trading date 17 March 2017, delivery date 20 March 2017 (1 contract = 10 underlying)

*

The strike price is based on the index level at NYSE Liffe London market close on 13 October 2016.

GBP VaR and sVaR

5

Equity

Equity spot and short call position (‘covered call’)

Long 50 000 equity shares Generali SPA (G IM Equity) at the stock price at market close on 13 October 2016.

Sell 6-month Call option on Generali SPA (G IM Equity) for 50 000 equity shares with a strike price that is 10 % above the price specified previously.

EUR VaR and sVaR

6

Equity

Collar Strategy

Long 10 000 equity shares Sanofi (SAN FP Equity) at the stock price at market close on 13 October 2016.

Sell 10 % OTM 6-month Call and Buy 10 % OTM 6-month Put for 10 000 equity shares Sanofi relative to the above specified price.

EUR VaR and sVaR

7

Equity

Long Strangle 12-month maturity

Buy 12-month 10 % OTM Call on 10 000 equity shares Aviva Plc. (AV/LN Equity) relative to the stock price at market close on 13 October 2016.

Buy 12-month 10 % OTM Put for 10 000 equity shares Aviva Plc. (AV/LN Equity) relative to the stock price at market close on 13 October 2016

GBP VaR and sVaR
Interest Rate

8

IR

Curve flattener trade

Long long-term and short short-term treasuries

Long EUR 5 million 10-year German Treasury bond (ISIN: DE0001102382, expiry 15 August 2025)

Short EUR 20 million 2-year German Treasury note (ISIN:DE0001141679, expiry 12 October 2018)

EUR VaR, sVaR and IRC

9

IR

Interest rate swap

Receive fixed rate and pay floating rate

Fixed leg: receive annually

Floating leg: 3-month Euribor rate, pay quarterly

Notional: EUR 5 million

Roll convention and calendar: standard

Effective date: 13 October 2016 (i.e. rates to be used are those at the market close on 13 October 2016)

Maturity date: 13 October 2026

EUR VaR and sVaR

10

IR

Two-year swaption on ten-year interest rate swap

Seller* of an OTC receiver swaption with maturity of two years on the interest rate swap described in row 9 but with a modified effective date and maturity date.

Effective date: 13 October 2016

Expiry date (of swaption): 14 October 2018

Maturity date (of the underlying swap): 13 October 2028

Premium paid at expiry

Cash settled

*

The strike price is based on the IRS rate as per row 9 (i.e. the strike price is the fixed rate as per row 9)

*

The institution is the seller of the option on the swap. The counterparty of the institution buys the right to enter a swap with the institution; if the counterparty exercises its right, it will receive the fixed rate while the institution will receive the floating rate.

EUR VaR and sVaR

11

IR

Interest rate swap USD

Receive fixed rate and pay floating rate

Fixed leg: receive annually

Floating leg: 1-year USD Libor rate, pay yearly

Notional: USD 5 million

Roll convention and calendar: standard

Effective date 13 October 2016 (i.e. rates to be used are those at the market close on 13 October 2016)

Maturity date: 13 October 2026

USD VaR and sVaR

12

IR

Inflation zero coupon swap

CPTFEMU index 10Y maturity par zero coupon swap

See details in Section 2.1 of this Annex.

EUR VaR and sVaR
FX

13

FX

Covered FX call

Short EUR/USD and short put EUR call USD option

Short 6-month EUR/USD forward contracts (i.e. long USD short EUR), cash-settled, with USD 20 million notional purchased at the EUR/USD ECB reference rate as of end of day 13 October 2016

Short 6-month put EUR call USD option notional USD 40 million (i.e. short USD against EUR), cash-settled, with strike price corresponding to the six-month forward exchange rate as of end of day 13 October 2016

Effective date: 13 October 2016

Expiry date: 13 April 2017

EUR VaR and sVaR

14

FX

Mark-to-market cross-currency basis swap

2 Year 3-month USD Libor vs 3-month Euribor swap

See details in Section 2.2 of this Annex.

EUR VaR and sVaR

15

FX

Knock-out option

Vanilla option that ceases to exist if the underlying spot breaches a predetermined barrier before maturity, cash-settled.

See details in Section 2.3 of this Annex.

EUR VaR and sVaR

16

FX

Double no touch option

Digital option that pays a predetermined amount if the spot does not touch any of the barriers during the life of the option, cash-settled.

See details in Section 2.4 of this Annex.

EUR VaR and sVaR
Commodity

17

Commodity

Gold forwards position

Long short-term and Short long-term contracts

Long 3 500 000 6-month ATM OTC London Gold Forwards contracts (1 contract = 0,001 troy ounces, notional: 3 500 troy ounces)

Short 4 300 000 1-year ATM OTC London Gold Forwards contracts (Notional: 4 300 troy ounces)

USD VaR and sVaR

18

Commodity

Short oil put options

Short 30 contracts of 6-month OTC WTI Crude Oil puts with strike = 12-month end-of-day forward price on 13 October 2016 (1 contract = 1 000 barrels, total notional 30 000 barrels)

USD VaR and sVaR
Credit Spread

19

Credit Spread

Sovereign CDS portfolio

Short protection via CDS on five countries

Short EUR 2 million per single-name 5year CDS (total 10 million notional) on the following countries:

effective date: 13 October 2016

restructuring clause: FULL

Country currency
Italy USD
UK USD
Germany USD
France USD
US EUR

EUR VaR, sVaR and IRC

20

Credit Spread

Sovereign bond/CDS portfolio

Sovereign bond basis portfolio on five countries

Long EUR 2 million per single-name 5 year CDS (total 10 million notional) on the following countries: Italy, UK, Germany, France, US as in portfolio in row 19

Long EUR 2 million per single-name 5 year bonds (total 10 million notional) on the following countries: Italy, UK, Germany, France, US (as identified in the following table)

effective date 13 October 2016

to convert the notional of the non-euro bonds use the FX spot as at end of day 13 October 2016

Identifier Description
IT0004966401 BTP 1 May 2021
DE0001135457 BUND 4 September 2021
GB00B4RMG977 GILT 7 September 2021
FR0010192997 OAT 25 April 2021
US912828D721 TBOND 31 August 2021

EUR VaR, sVaR and IRC

21

Credit Spread

Sector concentration portfolio

Short protection via CDS on 6 insurance conglomerates

Short 1 million notional per single-name 5 year CDS (total EUR 6 million notional) on the following companies

effective date 13 October 2016

Name Currency Doc clause
Generali SpA EUR MM
Allianz EUR MM
AXA EUR MM
Aegon EUR MM
Aviva EUR MM
Swiss Rinsurance EUR MM

EUR VaR, sVaR and IRC

22

Credit Spread

Diversified index portfolio

Short protection via CDS index

Short EUR 10 million notional iTraxx 5-year Europe SF index,on-the-run Series effective date 13 October 2016

EUR VaR, sVaR and IRC

23

Credit Spread

Diversified index portfolio (higher concentration)

Short protection via CDS index

Short EUR 5 million notional* iTraxx 5-year Europe SF index,on-the-run Series,

Short EUR 5 million notional (equally weighted) on the following five financials belonging to the iTraxx 5-year Europe SF index,on the run Series,

CDS name Currency Doc clause
Allianz SE CDS EUR SR 5Y EUR MM
AXA CDS EUR SR 5Y EUR MM
Generali Assicurazioni CDS EUR SR 5Y EUR MM
AEGON N.V. CDS EUR SR 5Y EUR MM
Aviva Plc CDS EUR SR 5Y EUR MM

Effective date: 13 October 2016

*

Each single name CDS shall have a notional of EUR 1 million.

EUR VaR, sVaR and IRC

24

Credit Spread

Diversified corporate portfolio

Short protection via CDS on 10 European corporates

Short EUR 1 million notional per single-name 5 year CDS (total EUR 10 million notional) on the following 10 companies (for USD CDS use the exchange rate at 13 October 2016):

Name Currency
Total SA EUR
Telefonica SA EUR
Siemens EUR
Royal Dutch Shell EUR
Unilever EUR
Airbus Group EUR
Bayer AG EUR
Vodafone EUR
Enel SpA EUR
Roche EUR

EUR VaR, sVaR and IRC

25

Credit Spread

Index basis

Short EUR 5 million notional iTraxx 5-year Europe SF index,on the run Series,

Effective date: 13 October 2016

Long EUR 5 million notional on all constituents of iTraxx 5-year Europe SF index,on–the-run Series (i.e. the aggregate notional is EUR 5 million and all names are equally weighted)

Effective date: 13 October 2016

EUR VaR, sVaR and IRC

26

Credit Spread

CDS bond basis

Long bonds EUR 2 million per single-name 5 year bonds on 3 EU Corporates.

ISIN Security name
XS0647298883 ENEL SPA 7 December 2021
BBG0000DZMN8 VODAFONE GROUP PLC 20 January 2022
FR0011380476
AXA SA

15 March 2021

Long protection via CDS on the same names (EUR 2 million per single-name 5 year).

Name Currency Doc clause
Enel SpA EUR MM
Vodafone Group PLC EUR MM
AXA EUR MM

EUR VaR, sVaR and IRC

27

Credit Spread

Short index put on ITraxx Europe Crossover on-the-run

See details in Section 2.5 of this Annex.

EUR VaR, sVaR and IRC

28

Credit Spread

Quanto CDS on Spain with delta hedge

See details in Section 2.6 of this Annex.

EUR VaR, sVaR and IRC
All-in portfolios
29
All-in portfolio (1)

A portfolio made of the portfolios in rows 1 to 28

EUR VaR, sVaR and IRC
30
All-in Equity portfolio (2)

A portfolio made of the equity portfolios in rows 1 to 7

EUR VaR and sVaR
31
All-in IR portfolio (3)

A portfolio made of the interest rate portfolios in rows 8 to 12

EUR VaR and sVaR
32
All-in FX portfolio (4)

A portfolio made of the FX portfolios in rows 13 to 16

EUR VaR and sVaR
33
All-in Commodity portfolio (5)

A portfolio made of the commodity portfolios in rows 17 and 18

EUR VaR and sVaR
34
All-in Credit Spread portfolio (6)

A portfolio made of the credit spread portfolios in rows 19 to 28

EUR VaR, sVaR and IRC

Section 2: Details for portfolios

2.1.

Details for portfolio n. 12: CPTFEMU index 10Y maturity zero coupon swap

Contract date

13 October 2016

Payer of fixed

Participating institution

Payer of HICP XT Float

Counterparty

Notional amount

EUR 10 000 000,0

Start date

13 October 2016

Maturity date

13 October 2026

Fixed rate details

Fixed rate

2,000 per cent

Payment day convention

Modified Following

Payment days

Target

Fixed payment dates

13 October 2026

HICP XT Float rate details

Float rate

Target

Frequency

At maturity in arrears

Index name

Eurostat Eurozone HICP Ex Tobacco Unrevised Series NSA

Payment days

13 October 2026

HICP XT Fixed rate calculation method

Notional amount * [(1 + Fixed rate)ⁿ – 1]

HICP XT Floating rate calculation method

Notional amount * [(Index(end)/Index(start)) – 1]

Index (end) = HICP XT October 2026 Index unrevised

Index (start) = HICP XT October 2016 Index unrevised

There is no floor.

2.2

Details for portfolio n. 14: Mark-to-market (resettable) cross-currency basis swap

Trade date

13 October 2016

Maturity date

15 October 2018

Business day convention

Modified Following

Reset dates

Each quarter starting from 13 October 2016

Payment dates

Quarterly

Notional EUR (constant currency amount)

EUR 20 000 000

Notional USD (variable currency amount)

An amount corresponding to EUR 20 000 000 according to the EUR/USD spot exchange rate at the beginning of each interest period

Mark-to-market amount

The difference between the variable currency amount of the current interest period and the variable currency amount of the previous interest period.

Interest period

From the previous payment date (inclusive) to the next payment date (exclusive)

Party A (variable currency payer)

Counterparty

Party B (constant currency payer)

Participating institution

Party A pays

USD 3M Libor on the variable currency amount (USD)

USD 3M Libor: 3-month Libor flat as quoted on Reuters page Libor01, 11:00 am London time, fixed 2 business days prior to the first day of each interest period

Party B pays

EUR 3M Euribor minus 20 basis points on the constant currency amount (EUR)

EUR 3M Euribor: 3-month Euribor as quoted on Reuters page Euribor01, 11:00 am London time, fixed 2 business days prior to the first day of each interest period

At each reset date party A will pay to party B the mark-to-market amount, if negative.

At each reset date party A will receive from party B the mark-to-market amount, if positive.

Initial exchange

Initial exchange date

Trade date

EUR initial exchange amount

EUR 20 000 000

USD initial exchange amount

USD equivalent to EUR 20 000 000

Final exchange

Final exchange date

Maturity date

EUR final exchange amount

EUR 20 000 000,0

USD final exchange amount

The variable currency amount determined for the final calculation period

2.3

Details for portfolio n. 15: Knock-out currency option

Trade date

13 October 2016

Buyer

Participating institution (Party B)

Seller

Client (Party A)

Currency option style

European

Currency option type

EUR Call USD Put

Call currency & call currency amount

EUR 15 000 000,0

Put currency & put currency amount

Equivalent amount of EUR 15 000 000,0 based on EUR/USD exchange rate on 13 October 2016, New York closing time

Strike price

EUR/USD exchange rate on 13 October 2016, New York closing time

Expiration date

13 October 2017

Expiration time

10:00 a.m. New York time

Automatic exercise

Applicable

Settlement

Non-Deliverable

Settlement date

20 October 2017

Barrier event

Applicable

Event type

Knock-out

Spot exchange rate direction

Greater than or equal to the barrier level

Initial spot price

value of EUR/USD on 13 October 2015

Barrier level

120 % of the initial spot price (USD/EUR)

Event period start date and time

Trade date at the time of execution hereof

Event period end date and time

Expiration date at the Expiration Time

2.4

Details for portfolio n. 16: Double no touch binary currency option

Trade Date

13 October 2016

Buyer

Participating institution (Party B)

Seller

Client [Party A]

Currency option style

Binary

Expiration date

13 October 2017

Expiration time

10:00 AM New York time

Automatic exercise

Applicable

Settlement

Non-deliverable

Settlement amount

EUR 1 000 000,0

Settlement date

20 October 2017

Barrier event

Applicable

Event type

Double No-Touch Binary

Initial spot price

Level of USD/EUR on 13 October 2016

Upper barrier level

120 % of the initial spot price (USD/EUR)

Lower barrier level

80 % of the initial spot price (USD/EUR)

Event period start date and time

Trade date at the time of execution hereof

Event period end date and time

Expiration date at the expiration time

Business day convention

Following

2.5

Details for portfolio n. 27: Index put on ITraxx Europe Crossover

Buyer

Counterparty

Seller

Participating institution

Option type

Put (i.e. right to sell an index for which we receive the fixed coupon leg)

Trade date

13 October 2016

Maturity

15 April 2017

Reference

ITRAXX-Xover ‘on-the-run’

Underlying end

Related reference maturity

Option style

European

Option strike

500.00 bp

Notional

EUR 10 000 000,0

2.6

Details for portfolio n. 28: Quanto Euro CDS on Spain with USD delta hedge

Quanto CDS General Terms:

Trade date

13 October 2016

Effective date

13 October 2016

Scheduled termination date

18 December 2021

Protection seller

Counterparty

Protection buyer

Participating institution

Business day

London

Business day convention

Modified Following

Reference entity

Kingdom of Spain

Notional

EUR 10 000 000,0

Coupon payment dates

18 March, 18 June, 18 September and 18 December of each year

Coupon spread

1,00 %

Fixed rate day count fraction

Actual/365 (Fixed)

Floating payment:

Floating rate payer calculation amount

EUR 10 000 000,0

Conditions to settlement

Credit Event Notice

Notice of publicly available information applicable

Credit events

The following credit events shall apply to this transaction:

Bankruptcy

Debt restructuring (CR)

Failure to pay

Settlement currency

EUR

Delta Hedge CDS General Terms:

Trade date

13 October 2016

Effective date

13 October 2016

Scheduled termination date

18 December 2021

Protection seller

Participating institution

Protection buyer

Counterparty

Business day

London

Business day convention

Modified Following

Reference entity

Kingdom of Spain

Notional

USD 11 000 000,0

Coupon payment dates

18 March, 18 June, 18 September and 18 December of each year

Coupon spread

1,00 %

Fixed rate day count fraction

Actual/365 (Fixed)

Floating payment:

Floating rate payer calculation amount

USD 11 000 000,0

Conditions to settlement

Credit Event Notice

Notice of publicly available information applicable

Settlement currency

USD

Section 3: Correlation Trading Portfolios (CTPS)

Portfolio numberRisk factor Portfolios Currency Risk Metrics requested

35

CTP
Long position in spread hedged equity tranche of iTraxx Europe index on-the-run Series (attachment point: 0 %, detachment point: 3 %) EUR VaR, sVaR and IM for CTP

36

CTP
Long position in spread hedged mezzanine tranche of iTraxx Europe index on-the-run Series (attachment point: 7 %, detachment point: 10 %) EUR VaR, sVaR and IM for CTP

37

CTP
Short position in spread hedged super senior tranche of iTraxx Europe index on-the-run Series (attachment point: 30 %, detachment point: 100 %) EUR VaR, sVaR and IM for CTP

The correlation trading portfolios contain positions in tranches of the iTraxx Europe index (on-the-run Series) defined in the table above.

Notional is EUR 10 million for each tranche.

The contractual maturity is 5 years. Valuation as of 5:00 pm New York time on each date of valuation.

The running spread that shall be used is 500 bps for the tranches in portfolio 1 and 2, and 100 bps for portfolio 3.

The portfolios are constructed by hedging each index tranche with the iTraxx Europe index (on the run Series) to achieve zero CS01 as of initial valuation date (‘spread hedged’). No further re-hedging is required.’