Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p6
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 15903–18967

of this Prudential Standard.
     3.          APRA may, in writing, require an ADI to reduce its market risk or increase its capital if APRA considers that the ADI's capital for market risk is not commensurate with the ADI's market risk profile.

Combination of the internal model approach and the standard method
     1.          An ADI may, subject to APRA's written approval, use a combination of the internal model approach and the standard method. In doing so, the ADI must comply with the requirements detailed in Attachment C.
     2.          An ADI must not use a combination of the two methodologies within a particular risk category (e.g. interest rates, foreign exchange, equities and commodities) and within the same regional centre without prior written approval from APRA.
     3.          APRA may require an ADI that has model approval that does not cover all risk categories to extend the internal model to cover other market risk categories.
Previous exercise of discretion
     1.          An ADI must contact APRA if it seeks to place reliance, for the purposes of complying with this Prudential Standard, on a previous exemption or other exercise of discretion by APRA under a previous version of this Prudential Standard.

Attachment A

Governance and the trading book policy statement and prudent valuation practices

Board and senior management responsibilities
     1.              An ADI's Board of directors (Board) is responsible for approving strategies and policies with respect to market risk and ensuring that senior management takes the steps necessary to monitor and control these risks.

     2.              In particular, the Board, or a Board committee, must ensure that the ADI has in place adequate systems to identify, measure and manage market risk, including identifying responsibilities, providing adequate separation of duties and avoiding conflicts of interest. An ADI must inform APRA of all significant changes in these systems and in its market risk profile and must ensure that market risk capital requirements are met on a continuous basis and that intra-day exposures are not excessive.

The trading book
     1.              An ADI must allocate to the trading book positions in financial instruments, including derivative products and other off-balance sheet instruments, that are held either with trading intent or to hedge other elements of the trading book. Positions held with trading intent are those which:

             1.           are held for short-term resale; or

             2.           are taken on by the ADI with the intention of benefiting in the short‑term from actual and/or expected differences between their buying and selling prices, or from other price or interest rate variations; or

             3.           arise from broking and market-making.

     2.              For a position to be eligible to receive trading book capital treatment, an ADI must have:

        1.           a clearly documented trading strategy for the position/instrument or portfolios that has