Minimum Capital Requirements for Market Risk

The bank must prepare, evaluate, and have available for SAMA the following for all trading desks: (1) Inventory ageing reports; (2) Daily limit reports including exposures, limit breaches, and follow-up action; (3) Reports on intraday limits and respective utilisation and breaches for banks with active intraday trading; and (4) Reports on the assessment of market liquidity. 4.9 Any foreign exchange or commodity positions held in the banking book must be included in the market risk capital requirement as set out in [3.3] . For regulatory capital calculation purposes, these positions will be treated as if they were held on notional trading desks within the trading book. 5- Boundary Between the Banking Book and the Trading Book Scope of the Trading Book 5.1 A trading book consists of all instruments that meet the specifications for trading book instruments set out in [5.2] through [5.13] . All other instruments must be included in the banking book. 5.2 Instruments comprise financial instruments, foreign exchange (FX), and commodities. A financial instrument is any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity. Financial instruments include primary financial instruments (or cash instruments) and derivative financial instruments. A financial asset is any asset that is cash, the right to receive cash or another financial asset or a commodity, or an equity instrument. A financial liability is the contractual obligation to deliver cash or another financial asset or a commodity. Commodities also include non-tangible (ie non-physical) goods such as electric power. The credit spread risk (CSR) capital requirement applies to money market instruments to the extent such instruments are covered instruments (ie they meet the definition of instruments to be included in the trading book as specified in [5.2] through [5.13] . 5.3 Banks may only include a financial instrument, instruments on FX or commodity in the trading book when there is no legal impediment against selling or fully hedging it. 5.4 Banks must fair value daily any trading book instrument and recognise any valuation change in the profit and loss (P&L) account. Instruments designated under the fair value option may be allocated to the trading book, but only if they comply with all the relevant requirements for trading book instruments set out in [5] . Standards for Assigning Instruments to the Regulatory Books 5.5 Any instrument a bank holds for one or more of the following purposes must, when it is first recognised on its books, be designated as a trading book instrument, unless specifically otherwise provided for in [5.3] or [5.8]: (1) short-term resale; (2) profiting from short-term price movements; (3) locking in arbitrage profits; or (4) hedging risks that arise from instruments meeting (1), (2) or (3) above. 5.6 Any of the following instruments is seen as being held for at least one of the purposes listed in [5.5] and must therefore be included in the trading book, unless specifically otherwise provided for in [5.3] or [5.8]: (1) instruments in the correlation trading portfolio; (2) instruments that would give rise to a net short credit or equity position in the banking book; 2 or (3) instruments resulting from underwriting commitments, where underwriting commitments refer only to securities underwriting, and relate only to securities that are expected to be actually purchased by the bank on the settlement date. Banks should continuously manage and monitor their banking book positions to ensure that any instrument that individually has the potential to create a net short credit or equity position in the banking book is not actually creating a non-negligible net short position at any point in time. 5.7 Any instrument which is not held for any of the purposes listed in [5.5] at inception, nor seen as being held for these purposes according to [5.6], must be assigned to the banking book.