Title[ Part 3: The Second Pillar - Supervisory Review Process
Section[ D. Market risk
1. Policies and procedures for trading book eligibility
778 (i). Clear policies and procedures used to determine the exposures that may be included in, and those that should be excluded from, the trading book for purposes of calculating regulatory capital are critical to ensure the consistency and integrity of firms’ trading book. Such policies must conform to paragraph 687 (i) of this Framework. Supervisors should be satisfied that the policies and procedures clearly delineate the boundaries of the firm’s trading book, in compliance with the general principles set forth in paragraphs 684 to 689 (iii) of this Framework, and consistent with the bank’s risk management capabilities and practices. Supervisors should also be satisfied that transfers of positions between banking and trading books can only occur in a very limited set of circumstances. A supervisor will require a firm to modify its policies and procedures when they prove insufficient for preventing the booking in the trading book of positions that are not compliant with the general principles set forth in paragraphs 684 to 689 (iii) of this Framework, or not consistent with the bank’s risk management capabilities and practices.
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