Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p8
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 21568–24807

if all such repo-style transactions are included. For this purpose, trading-related repo-style transactions are limited to those that meet the requirements of paragraphs 3 and 4 in this Attachment and both legs are in the form of either cash or securities that can be included in the trading book. All repo-style transactions are subject to a banking book counterparty credit risk charge regardless of where they are booked.

     5.              For transactions dealt internally within an ADI, the ADI:

        1.           must either:

                1.             eliminate all internal transactions between portfolios within the trading book before measuring positions exposed to market risk; or

                2.          include any or all internal deals in their position measurement provided this is done on a consistent basis; and

        2.           must include internal transactions dealt between the trading book and the banking book in the measurement of trading book positions.

     1.          An ADI must ensure that a clear audit trail is created at the time transactions are entered into, to facilitate monitoring of compliance with the criteria by which items are allocated to the trading or banking book.

The trading book policy statement

     1.          An ADI's trading book policy statement must detail:

        1.           whether the ADI intends to operate a trading book and whether it has relevant positions in interest rates, equities, foreign exchange or commodities;

        2.           who can approve or modify the trading book policy statement;

        3.           the activities the ADI considers to be trading and as constituting part of the trading book for the purposes of calculating capital;

        4.           the valuation methodology to be adopted for trading book exposures, including:

            1.             the extent to which an exposure can be marked-to-market daily by reference to an active, liquid two-way market;

            2.          for exposures that are marked-to-model, the extent to which the ADI can:

                    1.         identify the material risks of the exposure;

                    2.         hedge the material risks of the exposure with instruments for which there is an active, liquid two-way market; and

                    3.         derive reliable estimates for the key assumptions and parameters used in the model; and

            3.        the extent to which the ADI can and is required to generate valuations for the exposure that can be validated externally in a consistent manner;

        1.           whether there are any structural foreign exchange positions. Where appropriate, the operational definition of positions to be excluded from the calculation of an ADI's foreign exchange exposure must be outlined (refer to paragraphs 14 to 17 of this Attachment). A description of the policies covering the identification and management of structural foreign exchange positions, to ensure that trading activities are not classified as structural, must also be included;

        2.            when and how the statement will be subject to regular review;

        3.           the extent to which