Question ID: 965
Regulation Reference: (EU) No 2015/2450 - templates for the submission of information to the supervisory authorities
Article: 35
Template: S.08.01
Status: Final
Date of submission: 13 Feb 2017
Question
I work for an insurance company that would like to get some guidance on how to disclose their inflation swaps in the derivatives QRT's (s.08.01 and s.08.02). More precisely they would like to know if they are classified as Buyer or Seller (Long/Short) if they receive floating leg and pay fixed leg?
There are a couple of different viewpoints regarding this but the most common one is that the counterpart which is paying the fixed rate is long and the other counterpart that is paying the floating i short since if the inflation rises above the fixed rate leg, the payer of the fixed rate leg will gain, hence being long in inflation.
There is only guidance regarding interest rate swaps in the published manuals where the closed list gives the insurer clear instructions on how to disclose their position. However for other types of swaps this is not as clear, would be very grateful if you could provide further guidance on this.
EIOPA answer
First, we note that we expect inflation swaps to be reported with Complementary Identification Code (CIC) D9.
As in the instructions inflation swaps are not referred to as an exception (e.g. like Interest Rate Swaps) we expect them to be reported using option 1 and 2.
"One of the options in the following closed list shall be used, with the exception of Interest Rate Swaps:
1 - Buyer
2 – Seller"
Who is paying the fixed rate and getting the variable is long (hence buyer), while the other who is paying the floating and getting the variable rate is short (hence seller).