20.5.2014 Official Journal of the European Union L 148/29 COMMISSION DELEGATED REGULATION (EU) No 528/2014 of 12 March 2014 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for non-delta risk of options in the standardised market risk approach (Text with EEA relevance) THE EUROPEAN COMMISSION, Having regard to the Treaty on the Functioning of the European Union, Having regard to 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 ('), and in particular the third subparagraph of Article 329(3), the third subparagraph of Article 352(6) and the third sub- paragraph of Article 358(4) thereof. Whereas: (1) In light of the mandate contained in Regulation (EU) No 575/2013 to develop a range of methods to reflect other risks, apart from delta risk, in the own funds requirements of institutions, ‘in a manner proportionate to the scale and complexity of institutions’ activities in options and warrants’, it is appropriate to design approaches with different levels of sophistication and risk sensitivity which may be suitable for different profiles of institu- tions. It is, therefore, appropriate to provide for the following three approaches in order of increasing complexity to measure non-delta risks of options and warrants: (i) the simplified approach; (i) the delta-plus approach; and (ili) the scenario approach. This framework based on three approaches largely implements the non-delta-risk framework provided for by the Basel Committee for Banking Supervision (BCBS), with the necessary adjustments to take into account Regulation (EU) No 575/2013. That has the added benefit of ensuring consistency between Union rules and internationally agreed minimum standards. (2)  Given it is necessary to provide institutions that apply the delta-plus approach the possibility of treating non- continuous options in a more risk-sensitive way, institutions should be able to combine the approaches provided for the measurement of the risk of options and warrants under certain conditions, not only within groups but also within single legal entities. Nevertheless, in order to avoid the possibility of selective application of approaches by institutions with the view to minimizing their own funds requirements, the combination of approaches on an individual basis should only be allowed on the condition that institutions specify the scope of application of each approach before beginning to use it, so as to apply it consistently over time. (3)  Non-delta risks related to options and warrants can include, but are not limited to, risks arising from changes in the instrument’s gamma referred to as ‘gamma risk’ or ‘convexity risk’ as set out in Article 4(1)(a) of this Regu- lation, risks arising from changes in its vega referred to as ‘vega risk’ or ‘volatility risk’ as set out in Article 4(1)(b) of this Regulation, risks arising from changes in interest rates referred to as ‘interest rate risk’ or ‘rho risk’, nonli- nearities which cannot be captured by gamma risk and the risk of implied correlation on basket options or warrants. Of those risks, only the gamma and vega risks are of such materiality that justify the imposition of own funds capital requirements, even for the more complex institutions and, therefore, only those types of risks should be covered in the calculation of own funds requirements. Regulation (EU) No 575/2013 requires institu- tions to obtain prior permission from their competent authority to use an internal model to calculate delta. However, the use of non-delta risk approaches is to be monitored and assessed under the supervisory review and evaluation process of institutions set out by the provisions of Directive 2013/36/EU of the European Parliament and of the Council (3). Furthermore, the greater complexity of the scenario approach necessitates closer moni- toring by competent authorities and hence, its use by institutions should be subject to specified conditions of application, both prior to its first use and on an on-going basis. () OJL176,27.6.2013,p. 1. () Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).