This chapter describes risks that supervisors should consider when evaluating banks' market risk practices under Pillar 2.

Version effective as of 01 Jan 2023

Updated to reflect changes in market risk standards published in January 2019, including the revised implementation date announced on 27 March 2020.

Policies and procedures for trading book eligibility

33.1 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 a firm's trading book. Such policies must conform to 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 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 this framework, or not consistent with the bank's risk management capabilities and practices.

33.2 Instruments held in the trading book must be subject to clearly defined policies and procedures, approved by senior management, that are aimed at ensuring active risk management. The application of the policies and procedures must be thoroughly documented. These policies and procedures should, at a minimum, address the following: