QA2018-109 - Short positions T01.00

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Feb 01, 2024
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QA2018-109

Question


The SRB Guidance 2018 states that “short positions where the underlying instruments can be reused by the counterparty do not qualify as secured liabilities”. The application of such criterion seems unclear since it is not interpreted the meaning of "reuse an instrument underlying a short position". Supposing a reporting entity needs to disclose short positions originated from trading, whose settlement is secured by a repurchase agreement transaction, should these transactions be reported as Secured Liabilities or which futher analysis shall be performed?


Response


In many cases, the instruments exchanged in a short position are not 'securing' the transaction as the receiving entity should be able to use them in other operations. If this is the case, the short position cannot be classified as secured for the purposes of this report. However, banks have to perform a case by case analysis. If the short position is secured by a repurchase agreement transaction, it could be reported as a secured liability.