| 13.41 | The aggregate (non-DRC) capital requirement for those trading desks approved and eligible for the IMA (ie trading desks that pass the backtesting requirements and that have been assigned to the PLA test green zone or amber zone (CA) in [12.43] to [12.45]) is equal to the maximum of the most recent observation and a weighted average of the previous 60 days scaled by a multiplier and is calculated as follows where SES is the aggregate regulatory capital measure for the risk factors in model-eligible trading desks that are non-modellable.
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| 13.42 | The multiplication factor mc is fixed at 1.5 unless it is set at a higher level by SAMA to reflect the addition of a qualitative add-on and/or a backtesting add-on per the following considerations.
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| | (1) | Banks must add to this factor a “plus” directly related to the ex-post performance of the model, thereby introducing a built-in positive incentive to maintain the predictive quality of the model.
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| | (2) | For the backtesting add-on, the plus will range from 0 to 0.5 based on the outcome of the backtesting of the bank’s daily VaR at the 99th percentile based on current observations on the full set of risk factors (VaRFC).
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| | (3) | If the backtesting results are satisfactory and the bank meets all of the qualitative standards set out in [10.5] to [10.16], the plus factor could be zero. [12] presents in detail the approach to be applied for backtesting and the plus factor.
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| | (4) | The backtesting add-on factor is determined based on the maximum of the exceptions generated by the backtesting results against actual P&L (APL) and hypothetical P&L (HPL) as described [12].
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| 13.43 | The aggregate capital requirement for market risk (ACRtotal) is equal to the aggregate capital requirement for approved and eligible trading desks (IMAG,A = CA + DRC) plus the standardised approach capital requirement for trading desks that are either out-of-scope for model approval or that have been deemed ineligible to use the internal models approach (Cu). If at least one eligible trading desk is in the PLA test amber zone, a capital surcharge is added. The impact of the capital surcharge is limited by the formula:
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| 13.44 | For the purposes of calculating the capital requirement, the risk factor eligibility test, the PLA test and the trading desk-level backtesting are applied on a quarterly basis to update the modellability of risk factors and desk classification to the PLA test green zone, amber zone, or red zone. In addition, the stressed period and the reduced set of risk factors (ER,C and ER,S) must be updated on a quarterly basis. The reference dates to perform the tests and to update the stress period and selection of the reduced set of risk factors should be consistent. Banks must reflect updates to the stressed period and to the reduced set of risk factors as well as the test results in calculating capital requirements in a timely manner. The averages of the previous 60 days (IMCC, SES) and or respectively 12 weeks (DRC) have only to be calculated at the end of the quarter for the purpose of calculating the capital requirement.
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| 13.45 | The capital surcharge is calculated as the difference between the aggregated standardised capital charges (SAG,A) and the aggregated internal models-based capital charges (IMAG,A = CA + DRC) multiplied by a factor k. To determine the aggregated capital charges, positions in all of the trading desks in the PLA green zone or amber zone are taken into account. The capital surcharge is floored at zero. In the formula below:
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| | (1) | k = 0.5× ;
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| | (2) | SAi denotes the standardised capital requirement for all the positions of trading desk “i”;
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| | (3) | i ∈ A denotes the indices of all the approved trading desks in the amber zone; and
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| | (4) | i ∈ G, A denotes the indices of all the approved trading desks in the green zone or amber zone.
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| 13.46 | The risk-weighted assets for market risk under the IMA are determined by multiplying the capital requirements calculated as set out in this chapter by [12.5].
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