Both BCBS and CRR2 are ambiguous about whether risk weights and netting/offsetting are applied per instrument or per obligor.
Additionally, there is currently no consensus on how to resolve this ambiguity.
In both cases the risk weight and netting are stated as being per obligor:
In BCBS, the NetJTD is calculated per obligor MAR22.3 (2) and the risk weight is determined per NetJTD MAR22.24.
In CRR2, this is stated directly in Article 325v (1) (d) and (f)
However, in the formula for $DRC_b$ (MAR22.25 and Article 325y(4)), the risk weights and NetJTD are used at the instrument level.
Additionally, in MAR 22.7 and Article 325y (2), some exposures may have zero risk weight.
It is unclear how to calculate $DRC_b$ with this ambiguity.
Implementation
In Atoti FRTB, the exposures (risk-factors) can be flagged as “zero risk weight” (and this can be overridden per exposure and per jurisdiction).
The parameter sa.drc.use-zero-risk-weight (true for CRR2; false for BCBS) indicates that
exposures tagged as “zero risk weight” should be treated according to one of the following interpretations when calculating $DRC_b$:
Exclude Zero Risk-Weight Exposures
In this interpretation, the zero risk-weight exposures are excluded from both the HBR/WtS ratio and the $DRC_b$ formulas.
This interpretation can be selected by setting the configuration property sa.drc.zero-risk-weight-mode=ignore
Apply the Offsetting Twice
In this interpretation, the zero and non-zero risk-weight exposures are treated as having the same obligor for offsetting when calculating the HBR/WtS ratio.
However, when calculating the $DRC_b$, the exposures with different risk weights are considered to have different obligors for the purposes of offsetting.
Effectively the zero risk-weight exposures are omitted from the $DRC_b$ formula (having been included previously in the HBR/WtS formula).
This interpretation can be selected by setting the configuration property sa.drc.zero-risk-weight-mode=hbr (default).
Weighted Average Risk-Weight
In this interpretation, the weighted average of the risk weights for the zero and non-zero risk-weight exposures is determined using the Gross JTD per exposure as the weighting.
This weighted average is then used as the single risk weight for the obligor.
This interpretation can be selected by setting the configuration property sa.drc.zero-risk-weight-mode=weighted