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PRU 2.2.4 Guidance for Form PIB 1 — Appendix 3 — Market Risk in the Trading Book

Instructional Guidelines

DFSA acknowledges that even for Authorised Firms with relatively straightforward exposures on the trading books, the underlying calculations for various market risks can be detailed and complex. DFSA requires only the summary numbers to be reported but expects Authorised Firms to maintain detailed audit trails that substantiate the risk requirements. Authorised Firms are also reminded that they should make this information available for review as and when required.

In the event of any uncertainty, Authorised Firms are advised to contact their supervisor for clarity. Authorised Firms are asked to review the material set out PIB Appendix 5 with care given the multiplicity of methods that can be used to calculate the capital requirement on interest rate risk, equity risk, FX risk, Commodities risk Options Risk and Securities Underwriting Risk.

Where Authorised Firms intend to use internally developed market risk models for the purposes of valuing positions and calculating capital requirements, particular attention is drawn to PIB Section A5.8 and the qualitative criteria.

Item No. Item Guidance
1.A3.1.4,
1.A3.2.4,
1.A3.4.4
1.A3.5.4
1.A3.6
Various risk requirements An Authorised Firm's total trading book capital requirement is as defined in PIB Rule 2.8.3. With the exception of the foreign exchange risk requirement, the total risk requirements as calculated for interest rate, equity, Commodities, Options and Securities Underwriting transactions are to be transferred to Form PIB 6 under the section titled Trading Book Capital requirement (Item Nos. 6.33–6.37).
1.A3.3 Foreign exchange risk requirement The Foreign Exchange risk capital requirement is included in the Form PIB 6 under the Non Trading Book Capital requirement and should be transferred to Item No. 6.24 (PIB Rule 2.8.3 refers).
1.A3.10 Total trading book capital requirement The total Trading Book Capital requirement here should be transferred to the Form PIB 6, Item No. 6.38.