Minimum Capital Requirements for Market Risk

For the purposes of calculating the capital requirement, the risk factor eligibility test, the PLA test and the trading desk-level backtesting are applied on a quarterly basis to update the modellability of risk factors and desk classification to the PLA test green zone, amber zone, or red zone. In addition, the stressed period and the reduced set of risk factors (ER,C and ER,S) must be updated on a quarterly basis. The reference dates to perform the tests and to update the stress period and selection of the reduced set of risk factors should be consistent. Banks must reflect updates to the stressed period and to the reduced set of risk factors as well as the test results in calculating capital requirements in a timely manner. The averages of the previous 60 days (IMCC, SES) and or respectively 12 weeks (DRC) have only to be calculated at the end of the quarter for the purpose of calculating the capital requirement. 13.45 The capital surcharge is calculated as the difference between the aggregated standardised capital charges (SA G,A ) and the aggregated internal models-based capital charges (IMA G,A = C A + DRC) multiplied by a factor k . To determine the aggregated capital charges, positions in all of the trading desks in the PLA green zone or amber zone are taken into account. The capital surcharge is floored at zero. In the formula below: (1) k = 0.5× ; (2) S A i denotes the standardised capital requirement for all the positions of trading desk “i”; (3) i ∈ A denotes the indices of all the approved trading desks in the amber zone; and (4) i ∈ G, A denotes the indices of all the approved trading desks in the green zone or amber zone. 13.46 The risk-weighted assets for market risk under the IMA are determined by multiplying the capital requirements calculated as set out in this chapter by [12.5] . 14- Simplified Standardised Approach Risk-Weighted Assets and Capital Requirements 14.1 The risk-weighted assets for market risk under the simplified standardized approach are determined by multiplying the capital requirements calculated as set out in this chapter by 12.5 . (1) [14.3] to [14.73] deal with interest rate, equity, foreign exchange (FX) and commodities risk. (2) [14.74] to [14.86] set out a number of possible methods for measuring the price risk in options of all kinds. (3) The capital requirement under the simplified standardised approach will be the measures of risk obtained from [14.2] to [14.86] , summed arithmetically. 14.2 The capital requirement arising from the simplified standardised approach is the simple sum of the recalibrated capital requirements arising from each of the four risk classes – namely interest rate risk, equity risk, FX risk and commodity risk as detailed in the formula below, where: (1) CR IRR = capital requirement under [14.3] to [14.40] (interest rate risk), plus additional requirements for option risks from debt instruments (non-delta risks) under [14.74] to [14.86] (treatment of options); (2) CR EQ = capital requirement under [14.41] to [14.52] (equity risk), plus additional requirements for option risks from equity instruments (non-delta risks) under [14.74] to [14.86] (treatment of options); (3) CR FX = capital requirement under [14.53] to [14.62] (FX risk), plus additional requirements for option risks from foreign exchange instruments (non-delta risks) under [14.74] to [14.86] (treatment of options); (4) CR COMM = capital requirement under [14.63] to [14.73] (commodities risk), plus additional requirements for option risks from commodities instruments (non-delta risks) under [14.74] to [14.86] (treatment of options); (5) C F IRR = Scaling factor of 1.30; (6) C F EQ = Scaling factor of 3.50; (7) C F COMM = Scaling factor of 1.90; and (8) C F FX = Scaling factor of 1.20. Interest Rate Risk