CA-5.1.1

"Market risk" is defined as the risk of losses in on- and off-balance sheet positions arising from movements in market prices. The risks that are subject to the market risk capital requirement are:

³⁵ An equity position treated under "equity exposures in the banking book" is dealt with under the credit risk, as set out in Paragraphs CA-4.8.7 to CA-4.8.15.

CA-5.1.2

A trading book consists of positions in financial instruments, foreign exchange and commodities and inventories held either with trading intent or in order to hedge other elements of the trading book. To be eligible for trading book capital treatment, financial instruments must be free of any restrictions on their tradability. In addition, positions must be frequently and accurately valued, and the portfolio must be actively managed. Open equity stakes in Shari'a compliant hedge funds, private equity investments and real estate holdings do not meet the definition of the trading book, owing to significant constraints on the ability of banks to liquidate these positions and value them reliably on a daily basis. Such holdings must therefore be held in the Islamic bank licensee's banking book and treated as equity holding in corporates, except real estate which must be treated as per Paragraph CA-4.2.27 and Chapter CA-9 of this Module.

CA-5.1.3

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 both primary financial instruments (or cash instruments) and forward financial instruments.

CA-5.1.4

A financial asset is any asset that is cash, the right to receive cash or another financial asset; or the contractual right to exchange financial assets on potentially favourable terms, or an equity instrument. A financial liability is the contractual obligation to deliver cash or another financial asset or to exchange financial liabilities under conditions that are potentially unfavourable.

CA-5.1.5

Trading positions are defined as those positions of a bank that are held for short -term resale and/or with the intent of benefiting from actual or expected short-term price movements or to lock in arbitrage profits, and may include for example proprietary positions, positions arising from client servicing (e.g. matched principal broking) and market making. Islamic bank licensees must have clearly outlined policies and procedures for including or not including any position in the trading book for purposes of calculating their regulatory capital requirement, to ensure compliance with the criteria for trading book set forth in this section and taking into account the Islamic bank licensee's risk management capabilities and practices. Such policies must be commensurate with the Islamic bank licensee's capabilities and capacities for risk management. The Islamic bank licensee must have well-documented procedures to comply with stated policies, which must be fully documented and subject to periodic internal audit.