For proprietary traders meeting all requirements referred to in Article 96(1)(b) of the CRR, the capital requirements based on Article 96(2) CRR are calculated as the sum of the risk-weighted items for credit risk, counterparty risk, market risk and credit valuation adjustment risk (CVA risk) and the fixed overheads requirement (FOR). The first component of this sum pertains to risk items set out in points a) through d) and f) of Article 92(3) of the CRR, after application of Article 92(4) of the CRR. The second component of this sum pertains to the fixed overheads requirement as referred to in Article 97 of the CRR and the EU Delegated Regulation no. 2015/488 of the Commission of 4 September 2014 amending the Delegated Regulation (EU) no. 241/2014 as regards own funds requirements for firms based on fixed overheads (Pb L 78 van 24.3.2015).
This method for calculating capital requirements for proprietary traders applies pursuant to Article 96(1)(b) of the CRR to investment firms holding initial capital to the amount of EUR 730,000 as referred to in Article 28(2) of the CRD and Article 48(1)(j) of the Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft – Bpr) and that fulfil all the following conditions:
(a) they do not hold client money or securities;
(b) they undertake only dealing on own account;
(c) they have no external customers; and
(d) their execution and settlement transactions take place under the responsibility of a clearing institution and are guaranteed by that clearing institution.
In addition to the CRR capital requirements, CRD capital buffer requirements apply. The latter are discussed in part (2) of this Q&A – Capital buffer requirements under the CRD.