Entire Section

  • Introduction

    • PIB 5 Guidance

      1. This chapter addresses the regulatory requirements in respect of managing the Market Risk exposures of an Authorised Firm. Market Risk refers to the risk of incurring losses on positions held by an Authorised Firm with trading intent, due to adverse changes in market prices or in underlying value drivers. This chapter aims to ensure that an Authorised Firm engaging in activities exposing the firm to risks associated with potential adverse movements in market prices adopts appropriate and effective risk management practices and holds regulatory capital of the right quality that is also commensurate with the risks involved.
      2. This chapter includes requirements that an Authorised Firm:
      a. implement a comprehensive Market Risk management framework to manage, measure and monitor Market Risk commensurate with the nature, scale and complexity of the firm's operations; and
      b. calculate the Market Risk Capital Requirement and hold the same.
      3. The chapter allows the use of standard pre-defined methodologies for estimating the capital requirement and also allows the use of DFSA-approved internal models to calculate a firm's Market Risk Capital Requirement. The chapter covers Rules for determining Market Risk Capital Requirement on exposures involving interest rate risk, equity risk, foreign exchange risk, commodities risk, options risk, collective investment fund risk and securities underwriting risk.
      4. PIB Appendix 5 provides the detailed requirements, parameters, calculation methodologies and formulae in respect of the primary requirements outlined in PIB chapter 5. PIB Appendix 5 also provides detailed guidance on criteria for approval of internal models for calculation of Market Risk Capital Requirement, incorporation of incremental risk charges in internal models, if allowed and guidance on the required level of stress testing.
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]