PLA Test Requirements

If a trading desk is in the PLA test red zone, it is ineligible to use the IMA to determine market risk capital requirements and must be use the standardised approach. (1) Risk exposures held by these ineligible trading desks must be included with the out-of- scope trading desks for purposes of determining capital requirement per the standardised approach. (2) A trading desk deemed ineligible to use the IMA must remain out-of-scope to use the IMA until: (a) the trading desk produces outcomes in the PLA test green zone; and (b) the trading desk has satisfied the backtesting exceptions requirements over the past 12 months. 12.44 If a trading desk is in the PLA test amber zone, it is not considered an out-of-scope trading desk for use of the IMA. (1) If a trading desk is in the PLA test amber zone, it cannot return to the PLA test green zone until: (a) the trading desk produces outcomes in the PLA test green zone; and (b) the trading desk has satisfied its backtesting exceptions requirements over the prior 12 months. (2) Trading desks in the PLA test amber zone are subject to a capital surcharge as specified in [13.43] 48 Time effects can include various elements such as: the sensitivity to time, or theta effect (ie using mathematical terminology, the first-order derivative of the price relative to the time) and carry or costs of funding.