Minimum Capital Requirements for Market Risk

All banks must calculate the capital requirements using the standardised approach any other approach must be approved by SAMA. Banks that are approved by SAMA to use the IMA for market risk capital requirements must also calculate and report the capital requirement values calculated as set out below. (1) A bank that uses the IMA for any of its trading desks must also calculate the capital requirement under the standardised approach for all instruments across all trading desks, regardless of whether those trading desks are eligible for the IMA. (2) In addition, a bank that uses the IMA for any of its trading desks must calculate the standardised approach capital requirement for each trading desk that is eligible for the IMA as if that trading desk were a standalone regulatory portfolio (ie with no offsetting across trading desks). This will: (a) Serve as an indication of the fallback capital requirement for those desks that fail the eligibility criteria for inclusion in the bank’s internal model as outlined in [10] , [12] and [13] ; (b) Generate information on the capital outcomes of the internal models relative to a consistent benchmark and facilitate comparison in implementation between banks and/or across jurisdictions; (c) Monitor over time the relative calibration of standardised and modelled approaches, facilitating adjustments as needed; and (d) Provide macroprudential insight in an ex ante consistent format. 3.11 All banks must calculate the market risk capital requirement using the standardised approach for the following: (1) Securitisation exposures; and (2) Equity investments in funds that cannot be looked through but are assigned to the trading book in accordance to the conditions set out in [5.8](5)(b). 4- Trading Book Policy Statement (TPS) and Definition of a Trading Desk 4.1 All banks with market risk exposures are required to have a Trading Book Policy Statement (TPS). A bank’s trading book policy statement must detail: (a) Whether the bank intends to operate a trading book and whether it has relevant positions in market risk; (b) Who can approve or modify the trading book policy statement; (c) The activities the bank considers to be trading and as constituting part of the trading book for the purposes of calculating capital; (d) The valuation methodology to be adopted for trading book exposures, including: (i) The extent to which an exposure can be marked-to-market daily by reference to an active, liquid two-way market; (ii) For exposures that are marked-to-model, the extent to which the bank can: (A) Identify the material risks of the exposure; (B) Hedge the material risks of the exposure with instruments for which there is an active, liquid two-way market; and (C) Derive reliable estimates for the key assumptions and parameters used in the model; and (iii) The extent to which the bank can and is required to generate valuations for the exposure that can be validated externally in a consistent manner; (e) Whether there are any structural foreign exchange positions. Where appropriate, the operational definition of positions to be excluded from the calculation of a bank’s foreign exchange exposure must be outlined. A description of the policies covering the identification and management of structural foreign exchange positions, to ensure that trading activities are not classified as structural, must also be included; (f) When and how the statement will be subject to regular review; (g) The extent to which legal restrictions or other operational requirements would impede the bank’s ability to effect an immediate liquidation or hedge of an exposure in the trading book; and (h) The extent to which the bank is required to, and can, actively risk manage an exposure within its trading operations. 4.2 A bank must immediately notify SAMA of any material changes to its trading book policy statement. 4.3 The trading book policy statement must be incorporated in the bank’s risk management strategy required.