Banks Act, 1990 (Act No. 94 of 1990)RegulationsRegulations relating to BanksChapter II : Financial, Risk-based and other related Returns and Instructions, Directives and Interpretations relating to the completion thereof28. Market riskDirectives and interpretations for completion of monthly return concerning market risk (Form BA 320)Subregulation (6) |
| (6) | A bank— |
| (a) | shall include in the monthly form BA 320 all relevant financial instruments and positions envisaged in subregulation (3); |
| (b) | shall include in the daily form BA 325 all financial instruments held as an open position in the bank's trading book; |
| (c) | shall include in the monthly form BA 330, amongst other things, all financial instruments held in the bank's banking book that expose the bank to interest-rate risk; |
| (d) | shall include in the monthly form BA 340 all equity exposures held in the bank's banking book; |
| (e) | shall include in the monthly form BA 350 all relevant derivative instruments held in the bank's banking book or trading book; |
| (f) | shall in the calculation of the bank's exposure to market risk and the related required amount of capital and reserve funds, from the date on which the relevant transaction was entered into, include all relevant on-balance sheet and off-balance sheet transactions, including any forward sale or purchase transaction; |
| (g) | shall manage its exposure to market risk arising from all relevant positions held in its trading book and/ or banking book in such a manner that the bank continuously complies, that is, at the close of each business day, with the relevant prescribed minimum required amount of capital and reserve funds relating to market risk; |
| (h) | shall have in place robust risk management policies, procedures, processes and systems in order to ensure that the bank's intraday exposures to market risk are within the approved internal limits set by the bank; |
| (i) | shall, in order to calculate the bank's adjusted exposure in respect of any collateral held in terms of a repurchase or resale agreement, which transaction is included in the bank's trading book, apply the comprehensive approach relating to collateral, prescribed in regulation 23(9)(b); |
| (j) | shall have in place a written board approved policy, and procedures, which policy and procedures— |
| (i) | shall duly specify the criteria for determining which on-balance sheet items and which off-balance sheet items, or activities of the bank, are classified as part of the bank's trading book or activities, and which of the said items or activities are classified as part of the bank's banking book or activities; |
| (ii) | shall duly specify the bank's appetite for trading, including the nature and extent of the bank's trading activities; |
| (iii) | shall take into account the bank's risk management capabilities and practices; |
| (iv) | shall be sufficiently robust to ensure— |
| (A) | that any transfer of instruments, items or assets between the bank's trading book and banking book is duly documented and subject to audit verification; |
| (B) | the bank's continued compliance with the requirements of these Regulations, including compliance with minimum required capital and reserve funds, and compliance with all the relevant requirements specified in the said board-approved policy, which compliance, amongst other things, shall be duly documented and be subject to periodic internal audit; |
| (v) | shall specify that any transfer of instruments, items or assets between the bank's trading book and banking book shall be recorded at arms-length prices; |
| (vi) | shall be reviewed by the bank on a regular basis but not less frequently than once a year; |
| (vii) | shall duly specify— |
| (A) | the extent to which an exposure can be marked-to-market on a daily basis by reference to an active liquid two-way market; |
| (B) | the extent to which the bank is able to and required to obtain or derive valuations for exposures, which valuation can be externally validated in a consistent manner; |
| (C) | the extent to which legal restrictions or other operational requirements may impede the bank's ability to effect an immediate liquidation of relevant exposure; |
| (D) | the extent to which the bank is required to and able to actively manage all relevant exposures within its trading operations; |
| (E) | the extent to which the bank may transfer risk or exposures between the banking book and trading book, and criteria for the said transfers; |
| (viii) | shall in the case of exposures that are marked-to-model, duly specify the extent to which the bank is able— |
| (A) | to identify the material risks relating to the relevant exposures; |
| (B) | to hedge the material risks arising from the said exposures and the extent to which any hedging instrument would have an active, liquid two-way market; |
| (C) | to derive reliable estimates for the key assumptions and parameters used in the bank's model; |
| (k) | shall, based on the relevant requirements relating to financial instruments in foreign exchange or commodity positions held in the bank's trading book, calculate and maintain capital and reserve funds in respect of such financial instruments or positions held in the bank's banking book; |
| (I) | shall implement a robust risk management framework for the prudent valuation of positions held in the bank's trading book, which risk management framework, amongst other things, shall include the key elements specified in regulation 39(13); |
| (m) | shall whenever relevant or required for reporting or calculation purposes, unless expressly stated otherwise in this regulation 28, convert all relevant gross or net foreign exchange or gold positions at the prevailing spot exchange rate. |