• Introduction

    • Guidance

      1. This Chapter addresses the capital requirements in respect of managing the Market Risk Exposures of an Authorised Person. Market Risk refers to the risk of incurring losses on positions held by an Authorised Person with trading intent, due to adverse changes in market prices or in underlying value drivers. This Chapter aims to ensure that an Authorised Person engaging in activities exposing the firm to risks associated with potential adverse movements in market prices adopts adequate, appropriate, sound and effective risk management practices and holds regulatory capital of the right quality that is also commensurate with the risks involved.
      2. This Chapter includes requirements that an Authorised Person:
      a. implement a comprehensive Market Risk management framework to manage, measure and monitor Market Risk commensurate with the nature, scale and complexity of the firm's operations; and
      b. calculate the Market Risk Capital Requirement and hold the same.
      3. The Chapter allows the use of standard pre-defined methodologies for estimating the Capital Requirement and also allows the use of internal models approved by the Regulator to calculate a firm's Market Risk Capital Requirement. The Chapter covers Rules for determining Market Risk Capital Requirement on Exposures involving interest rate risk, equity risk, foreign exchange risk, commodities risk, Options risk, Collective Investment Fund risk and Securities Underwriting risk.
      4. App5 provides the detailed requirements, parameters, calculation methodologies and formulae in respect of the primary requirements outlined in Chapter 5. App5 also provides detailed guidance on criteria for approval of internal models for calculation of Market Risk Capital Requirement, incorporation of incremental risk charges in internal models, if allowed and guidance on the required level of stress testing.