1. Market risk is the risk of losses in on- and off-balance-sheet positions arising from movements in market prices (e.g. stock prices, interest rates, foreign exchange rates).

2. Interest rate risk in trading book positions is a component of market risk (for interest rate risk in the banking book see Annex 6 of these guidelines.)

3. Under paragraph 10 of Annex V of the CRD, all institutions, irrespective of the method used for the calculation of capital requirements for market risks, shall implement policies and processes for the measurement and management of all material sources and effects of market risks.

Applicable to all institutions

4. Stress tests are usually conducted by all institutions for their positions in financial instruments in the trading book as part of their firm-wide stress testing as well as for market risk management approaches and measures purposes.

5. If applicable, institutions can consider a range of exceptional but plausible market shocks or scenarios for their trading book positions. For example, "exceptional" changes in market prices, shortages of liquidity in the markets and defaults of large market participants can be taken into account. Dependencies between different markets and consequentially increasing correlations can also be factored in.

6. The stress tests applied and the calibration of those tests may reflect:

a. the nature of the portfolios;