(3) In respect of—
| (a) | the current market value of any interest rate related instrument held in the reporting bank's trading book; |
| (b) | the current market value of any equity instrument held in the reporting bank's trading book; |
| (c) | any foreign exchange instrument held in the reporting bank's banking book or trading book, that is, any foreign-currency position held by the bank; |
| (d) | any commodity position held in the reporting bank's banking book or trading book, that is, any commodity position held by the bank, |
the reporting bank shall calculate a capital requirement in accordance with the relevant requirements specified in this regulation 28, provided that—
| (i) | subject to such conditions as may be specified in writing by the Registrar, the Registrar may allow a bank to exclude from the said capital requirements such structural foreign exchange positions as may be specified in writing by the Registrar; |
| (ii) | when the bank internally hedges a credit exposure held in the bank's banking book using a credit-derivative instrument held in the bank's trading book, the banking book exposure shall be deemed not to be hedged for purposes of calculating the bank's required amount of capital and reserve funds unless the bank purchased from an eligible third party protection provider a credit-derivative instrument that complies with the relevant requirements specified in regulations 23(9)(d)(xi)(B) and 23(9)(e), provided that when the bank purchased and recognises the third party protection as a hedge of the said banking book exposure as envisaged in this subparagraph (ii), neither the internal nor external credit derivative hedge shall be included in the bank's trading book for the purposes of these Regulations; |
| (iii) | the bank shall in accordance with the relevant requirements specified in regulation 38(5) deduct from its capital and reserve funds any instrument held that qualifies as capital of the reporting bank, any other bank, any securities firm or other regulated institution, or that constitutes an intangible asset, provided that, subject to such conditions as may be specified in writing by the Registrar, the Registrar may in respect of instruments that qualify as capital of any other bank, securities firm or regulated institution grant approval for a bank that actively acts as a market maker in the said instruments to include the said instruments in its trading book and calculate a capital requirement in accordance with the relevant requirements specified in these Regulations instead of deducting the said amounts from the bank's capital and reserve funds; |
| (iv) | the bank may include in its trading book any term trading related repo-style transaction that complies with the relevant requirements specified in these Regulations in respect of trading positions, provided that— |
| (A) | both legs of the said transaction shall be in the form of cash or securities otherwise eligible for inclusion in the bank's trading book; |
| (B) | regardless whether the said transaction is recorded in the bank's banking book or trading book, all repo-style transactions shall be subject to the relevant requirements relating to counterparty credit risk specified in regulations 23(15) to 23(19). |
| (v) | based on the relevant requirements specified in regulations 23(15) to 23(20) read with the relevant risk weights envisaged in regulations 23(6), 23(8), 23(11) or 23(13) the bank shall, in addition to any relevant required amount of capital and reserve funds relating to specific risk or general risk calculated in accordance with the relevant requirements specified in this regulation 28, calculate the relevant required amount of capital and reserve funds relating to counterparty credit risk arising from any relevant OTC derivative instrument, repo-style transaction or other transaction held in the bank's trading book, including any relevant credit-derivative instrument, provided that the risk weights applied by the bank in respect of the relevant exposure to counterparty credit risk shall be consistent with the risk weights respect of the bank's banking book credit exposure, that is— |
| (A) | a bank that adopted the standardised approach in order to measure the bank's exposure to credit risk in respect of any banking book exposure shall apply the relevant risk weights envisaged in the said standardised approach in order to calculate the said required amount of capital and reserve funds relating to counterparty credit risk arising from any relevant OTC derivative instrument, repo-style transaction or other transaction held in the bank's trading book; |
| (B) | a bank that adopted the IRB approach in order to measure the bank's exposure to credit risk in respect of any banking book exposure shall apply the relevant risk weights envisaged in the said IRB approach in order to calculate the said required amount of capital and reserve funds relating to counterparty credit risk arising from any relevant OTC derivative instrument, repo-style transaction or other transaction held in the bank's trading book; |
| (vi) | in order to ultimately calculate the bank's required capital adequacy ratio the bank shall, based on the formula specified below, convert the bank's required amount of capital and reserve funds calculated in accordance with the relevant requirements specified in this regulation 28 to the required risk-weighted exposure amount. |
RWE = K x 12,5
where:
| RWE | is the required risk-weighted exposure amount |
| K | is the required amount of capital and reserve funds calculated in accordance with the relevant requirements specified in this regulation 28. |
