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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
Laws
Rulebook Modules
Prudential — Investment, Insurance Intermediation and Banking Module (PIB) [VER33/02-19]
Sourcebook Modules
Consultation Papers
Policy Statements
DFSA Codes of Practice
Amendments to Legislation
Media Releases
Notices
Financial Markets Tribunal
Archive

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  • PIB A2.2 Trading Book Policy

    • PIB A2.2 Guidance

      The requirement for a Trading BookG policy is prescribed in PIB Rule A2.1.1.

      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB A2.2.1

      A Trading BookG policy must include clearly defined policies, procedures and methodologies by which the Authorised FirmG :

      (a) defines its Trading BookG and identifies positions to be included in its Trading BookG ;
      (b) allocates positions between the Non-Trading BookG and the Trading BookG ;
      (c) actively manages and values its positions in the Trading BookG ;
      (d) measures its Trading BookG risks; and
      (e) controls transfers of positions between the Non-Trading BookG and the Trading BookG .
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB A2.2.2

      An Authorised FirmG must obtain the approval of its Governing BodyG for its Trading BookG policy. The Authorised FirmG must review and where necessary update the policy at least annually. The Authorised FirmG must obtain the approval of the Governing BodyG for all significant changes.

      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB A2.2.3

      An Authorised FirmG must, without undue delay, notify the DFSAG when its Governing BodyG approves the adoption of a Trading BookG policy or approves any changes to the policy.

      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB A2.2.3 Guidance

        1. At a minimum, the DFSAG expects that a Trading BookG policy will address the following:
        a. the definition of Trading BookG and trading strategy, including:
        i. the activities that the Authorised FirmG considers to be trading and the types of positions that are to be allocated to the Trading BookG for the purposes of calculating its regulatory Capital RequirementsG ;
        ii. the types of positions that are excluded from the Trading BookG ; and
        iii. the procedures to ensure that the criteria by which positions are allocated to the Trading BookG are adhered to on a consistent basis, including details on:
        A. the organisational unit or department within the Authorised FirmG responsible for monitoring adherence to the Trading BookG policy;
        B. the frequency of monitoring;
        C. process and methodology of this monitoring; and
        D. how the continuing appropriateness of allocations is confirmed;
        b. the extent of active management and valuation, including:
        i. the extent to which a position can be marked-to-market daily by reference to an active, liquid two-way market;
        ii. for positions which are marked-to-model, the extent to which the Authorised FirmG can:
        A. identify all the material risks of the position;
        B. hedge the material risks of the position and, where the material risks of the position are hedged, the extent to which hedging instruments used have an active and liquid two-way market; and
        C. derive reliable external estimates for the key assumptions and parameters used in the model;
        iii. the extent to which the Authorised FirmG can, and is required to, generate valuations for the position which can validated externally by its auditors or by the DFSAG in a consistent manner;
        iv. the extent to which the Authorised FirmG can, and is required to, maintain documents to support valuations of its Trading BookG positions;
        v. the basis for determining and maintaining valuation adjustments for the purposes of calculating regulatory Capital RequirementsG ;
        vi. the extent to which legal restrictions or other operational requirements would impede the ability of the Authorised FirmG to effect an immediate liquidation of the position; and
        vii. the extent to which the Authorised FirmG can, and is required to, actively risk manage a position within its trading operations;
        c. transfers between Non-Trading and Trading BooksG , including:
        i. the extent to which an Authorised FirmG may transfer positions between the Non-Trading BookG and the Trading BookG and the criteria for such transfers;
        ii. the procedures to effect such transfers; and
        iii. the controls in place to prevent inappropriate transfers of positions between the Non-Trading BookG and the Trading BookG ; and
        d. the following additional considerations:
        i. whether there are any subsidiaries or offshore branches of the Authorised FirmG undertaking transactions to be included in the Trading BookG . If so, a list of such subsidiaries or branches shall be included, along with a description of the trading activities carried out by such entities;
        ii. the treatment of inter-desk deals; and
        iii. the identification and management of structural foreign exchange positions.
        2. An Authorised FirmG should prepare its Trading BookG policy on a consolidated basis where the Financial GroupG either manages its trading risk centrally or employs the same risk management techniques across all the entities in the Financial GroupG . Where a Trading BookG policy is prepared on a consolidated basis, an Authorised FirmG should ensure that its application to the Authorised FirmG and each of the other entities in the Financial GroupG is made clear and approved by the Governing BodyG of the Authorised FirmG and the Governing BodyG of each of those entities.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]