Financial Services (Investment and Fiduciary Services)
FINANCIAL SERVICES (CAPITAL ADEQUACY OF INVESTMENT FIRMS) REGULATIONS 2007 PART D
Inclusion In The Trading Book.
1. An investment firm shall have clearly defined policies and procedures for determining which position to include in the trading book for the purposes of calculating its capital requirements, consistent with the criteria set out in regulation 7 and taking into account the investment firm’s risk management capabilities and practices. Compliance with these policies and procedures shall be fully documented and subject to periodic internal audit.
2. An investment firm shall have clearly defined policies and procedures for overall management of the trading book. At a minimum these policies and procedures shall address–
the activities the investment firm considers to be trading and as constituting part of the trading book for capital requirement purposes;
the extent to which a position can be marked-to-market daily by reference to an active, liquid two-way market;
for positions that are marked-to-model, the extent to which the investment firm can–
identify all material risks of the position;
hedge all material risks of the position with instruments for which an active, liquid two-way market exists; and
derive reliable estimates for the key assumptions and parameters used in the model;
the extent to which the investment firm can, and is required to, generate valuations for the position that can be validated externally in a consistent manner;
the extent to which legal restrictions or other operational requirements would impede the investment firm’s ability to effect a liquidation or hedge of the position in the short term;
the extent to which the investment firm can, and is required to, actively risk manage the position within its trading operation; and
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Repealed Subsidiary 2007/002