The following is based on the assumption that the insurer holds no other positions that have to be covered in the Equity risk sub-module and that the equities are listed on a regulated markets in the countries which are members of the European Economic Area (EEA) or the Organisation for Economic Cooperation and Development (OECD). Furthermore it is assumed that the symmetric adjustment equals zero and that the value of the positions in A (long) and B (short) in accordance with Article 75 of Solvency II is 100 and -100 respectively.

The following does not imply any statement whether a "naked" short position would be in line with the requirements on the use of derivatives set out in Article 132 ('Prudent person principle') of Solvency II.

The second option for the calculation of the capital requirement for equity risk (i.e. 39% * (100-100)) would only be possible if the requirements set out in Articles 208 to 215 of Commission Delegated Regulation 2015/35 were met. One reason why this might not be the case in the described case could be material basis risk as different stocks are held long and short.

If the conditions mentioned in the previous paragraph are not met, the calculation of the capital requirement should be performed as outlined in the third option (i.e. 39% * 100).

Irrespective of compliance or non-compliance with Article 132 of Solvency II it seems important to point out that a material "naked" short position would have to be taken into account when assessing whether the calculation of the SCR with the standard formula is appropriate.