Explanation:
FRTB has attempted to make the distinction between the banking book and the trading book clearer and less subjective. To be allocated to the trading book, the bank must demonstrate more than an intent to trade. Precisely, some two criteria must be met:
Things to Remember
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Q.4030 To allocate an asset to the trading book, FRTB proposes two major conditions:
I. bank must be able to trade the asset, and physically manage the associated risks of the underlying asset on the trading desk.
II. asset must be traded on an exchange
III. The day-to-day price fluctuations must affect the bank’s equity position and pose a risk to bank solvency.
IV. There must be significant default risk on the part of the obligor
A
I and IV
B
II and III
C
I and III
D
IV only
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