Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p4
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 10514–13556

that is being protected by the credit derivative.

Key principles
     1.          An ADI that wishes to operate a trading book must, in accordance with Attachment A, submit for APRA's approval a trading book policy statement that specifies those activities that belong in the trading book.
     2.          An ADI must allocate positions in financial instruments to its trading book if they are held with trading intent or in order to hedge other elements of the trading book. In allocating positions, an ADI must be guided by its trading book policy statement.
     3.          An ADI must maintain a framework for prudent valuation practices for trading book positions.
     4.          An ADI operating in the foreign exchange, commodities, interest rate or equities markets must ensure that appropriately robust risk measurement and management systems are in place.
     5.          An ADI must hold capital against:
         1.           market risks arising from positions allocated to the trading book; and
         2.           all foreign exchange and commodity risks.

The TFC capital requirement
     1.          An ADI must calculate the TFC capital requirement using one of the following methods:
             1.           the standard method described in Attachment B, under which the TFC capital requirement is the sum of the market risk charges calculated in accordance with that method;
             2.           the internal model approach described in Attachment C, under which the TFC capital requirement is the measure of market risk derived from applying that approach; or
             3.           a combination of the standard method and the internal model approach, in which case the TFC capital requirement is the sum of the market risk capital requirements determined under the two methodologies.
     2.          Unless required to do otherwise by APRA (and subject to the conditions in paragraph 2 of Attachment B and paragraph 6 of Attachment C being satisfied):

             1.           an ADI that has market-related activities in Australia and offshore branches (offshore Level 1 sites) and manages those market-related activities centrally may calculate its Level 1 TFC capital requirement allowing for netting and offsetting of short and long positions in exactly the same instrument that have been taken within the ADI, whether in Australia or an offshore Level 1 site; and
             2.           an ADI that has market-related activities in Australia and either offshore branches or offshore subsidiaries (offshore Level 2 sites), and manages those market-related activities centrally may calculate its Level 2 TFC capital requirement allowing for netting and offsetting of short and long positions in exactly the same instrument that have been taken within the group, comprising the entities in Australia and the offshore Level 2 sites.

In each case the ADI may do so regardless of where the positions are booked (refer to paragraph 2 of Attachment B) and, if using the internal model approach,