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CA-5.1.7

The basic requirements for positions eligible to receive trading book capital treatment are:

(a) Clearly documented trading strategy for the position/instrument or portfolios, approved by senior management (which would include expected holding horizon);
(b) Clearly defined policies and procedures for the active management of the position, which must include the following points:
(i) Positions are managed on a trading desk;
(ii) Position limits are set and monitored for appropriateness;
(iii) Dealers have the autonomy to enter into/manage the position within agreed limits and according to the agreed strategy;
(iv) Positions are marked to market at least daily and when marking to model the parameters must be assessed on a daily basis;
(v) Positions are reported to senior management as an integral part of the Islamic bank licensee's risk management process; and
(vi) Positions are actively monitored with reference to market information sources (assessment must be made of the market liquidity or the ability to hedge positions or the portfolio risk profiles). This includes assessing the quality and availability of market inputs to the valuation process, level of market turnover, sizes of positions traded in the market, etc.; and
(c) Clearly defined policy and procedures to monitor the positions against the Islamic bank licensee's trading strategy including the monitoring of turnover and stale positions in the Islamic bank licensee's trading book.
January 2015