Trading Book Regulation

Revisions to the basel ii market risk framework.

Trading book regulation. So far the banks have been deciding if a book was a trading book or a banking book. In january 2016 we were asked by our customers to support them with the newly introduced fundamental review of the trading book frtb regulation and in particular the risk factor eligibility test rfet. Frtb regulation proposed the following two main changes. Is this interpretation correct.

Eba consultation non trading book positions under frtb. The fundamentals of market risk rules. Refinitiv completed much work with our customers to support them in getting a better understanding of how the test behaves in the real world. However the movement of an instrument from the trading book to the banking book requires supervisory approval.

This is the basel committee s the committee 1 second consultative paper on the fundamental review of trading book capital requirements 2 the revisions to the capital framework set out in this paper aim to contribute to a more resilient banking sector by strengthening capital standards for market risks. With the 2022 fundamental review of the trading book frtb deadline looming banks are fast coming to grips with the amount of work still to be done to achieve a successful implementation 29 nov 2019. Trading book assets are traditionally marked to market on timely basis whereas the banking book assets are held until. Trading book losses can have a cascading global effect when they hit numerous financial institutions at the same time such as during the long term capital management ltcm russian debt crisis.

Per rbc25 16 if an instrument is re classified as an accounting trading asset or liability the switch from the banking book to the trading book can be automatic without supervisory approval. The paper changed the trading book regime. Each position on an asset belongs to a book being trading or a banking book. 2009 basel 2 5 first attempt by the bcbs to address the trading book issues revealed by the global financial crisis.

Brussels 2 july 2020 the ebf has responded to the consultation paper on draft rts on the treatment of non trading book positions subject to foreign exchange fx risk or commodity risk of the european banking authority eba. The fundamental review of the trading book frtb is a comprehensive suite of capital rules developed by the basel committee on banking supervision bcbs.