1. An internal hedge shall in particular meet the following requirements:
(a) it shall not be primarily intended to avoid or reduce own funds requirements;
(b) it shall be properly documented and subject to particular internal approval and audit procedures;
(c) it shall be dealt with at market conditions;
(d) the market risk that is generated by the internal hedge shall be dynamically managed in the trading book within the authorised limits;
(e) it shall be carefully monitored in accordance with adequate procedures.
2. The requirements set out in paragraph 1 shall apply without prejudice to the requirements applicable to the hedged position in the non-trading book or in the trading book, where relevant.
3. Where an institution hedges a non-trading book credit risk exposure or counterparty risk exposure using a credit derivative booked in its trading book, that credit derivative position shall be recognised as an internal hedge of the non-trading book credit risk exposure or counterpart
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