| 3.9 | In determining the market risk for regulatory capital requirements, a bank may choose between two broad methodologies: the standardised approach as described in [6] to [9] and internal models approach (IMA) for market risk as described in [10] to [13]. SAMA approval is required before using the IMA approach. SAMA may allow banks that maintain smaller or simpler trading books to use the simplified alternative to the standardised approach as set out in [14]. The use of the simplified alternative is subject to SAMA approval and oversight.
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| | (1) | To determine the appropriateness of the simplified alternative for use by a bank for the purpose of its market risk capital requirements, SAMA will consider the following indicative criteria:
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| | | (a) | The bank should not be a global systemically important bank (G-SIB) or a domestic systemically important bank (D-SIB).
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| | | (b) | The bank should not use the IMA for any of its trading desks.
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| | | (c) | The bank should not hold any correlation trading positions.
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| | (2) | SAMA can mandate that banks with relatively complex or sizeable risks in particular risk classes to apply the full standardised approach instead of the simplified alternative, even if those banks meet the indicative eligibility criteria referred to above.
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| 3.10 | All banks must calculate the capital requirements using the standardised approach any other approach must be approved by SAMA. Banks that are approved by SAMA to use the IMA for market risk capital requirements must also calculate and report the capital requirement values calculated as set out below.
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| | (1) | A bank that uses the IMA for any of its trading desks must also calculate the capital requirement under the standardised approach for all instruments across all trading desks, regardless of whether those trading desks are eligible for the IMA.
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| | (2) | In addition, a bank that uses the IMA for any of its trading desks must calculate the standardised approach capital requirement for each trading desk that is eligible for the IMA as if that trading desk were a standalone regulatory portfolio (ie with no offsetting across trading desks). This will:
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| | | (a) | Serve as an indication of the fallback capital requirement for those desks that fail the eligibility criteria for inclusion in the bank’s internal model as outlined in [10], [12] and [13];
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| | | (b) | Generate information on the capital outcomes of the internal models relative to a consistent benchmark and facilitate comparison in implementation between banks and/or across jurisdictions;
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| | | (c) | Monitor over time the relative calibration of standardised and modelled approaches, facilitating adjustments as needed; and
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| | | (d) | Provide macroprudential insight in an ex ante consistent format.
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| 3.11 | All banks must calculate the market risk capital requirement using the standardised approach for the following:
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| | (1) | Securitisation exposures; and
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| | (2) | Equity investments in funds that cannot be looked through but are assigned to the trading book in accordance to the conditions set out in [5.8](5)(b).
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