Hong Kong Regulations

BANKING (DISCLOSURE) RULES - SECT 83

Market risk

(1) An authorized institution which uses the STM approach to calculate its
market risk shall disclose—

   (a)  its positions covered by the approach; and

   (b)  its market risk capital charge for its—

        (i)    interest rate exposures (including options exposures if
               applicable);

        (ii)   equity exposures (including options exposures if applicable);

        (iii)  foreign exchange (including gold) exposures (including options
               exposures if applicable); and

        (iv)   commodity exposures (including options exposures if
               applicable).

(2) An authorized institution which uses the IMM approach to calculate its
market risk capital charge shall—

   (a)  disclose the positions covered by the approach;

   (b)  subject to paragraph (c), disclose a description of—

        (i)    the methodologies it uses to ensure it complies with section
               316(3) of the Capital Rules in respect of its valuation of
               market risk positions; and

        (ii)   the extent to which the methodologies referred to in
               subparagraph (i) are so used;

   (c)  ensure that the description referred to in paragraph (b) includes—

        (i)    an articulation of the soundness standards on which the
               institution's internal capital adequacy assessment is based;
               and

        (ii)   a description of the methodologies the institution uses to
               achieve a capital adequacy assessment which is consistent with
               the soundness standards;

   (d)  for each position covered by the approach, disclose—

        (i)    the characteristics of the internal models it uses;

        (ii)   a description of the stress-testing the institution applies to
               the position; and

        (iii)  a description of the approach the institution uses to back-test
               or validate the accuracy and consistency of the internal models
               it uses and the modelling processes; and

   (e)  for each position covered by the approach and for each internal model
        used by the institution for the position, separately disclose—

        (i)    the institution's average, high and low VaR for the annual 
               reporting period and the VaR as at the last trading day of the
               annual  reporting period; and

        (ii)   a comparison of VaR estimates with actual gains or losses
               experienced by the institution and a breakdown of important
               exceptions in back-test results.

(3) Where pursuant to section 20(2)(a) of the Capital Rules an authorized
institution uses an approach (referred to in this subsection as
the "relevant approach") other than the STM approach or IMM approach to
calculate its market risk, then subsection (2), with all necessary
modifications, applies to and in relation to the institution and the
relevant approach as that subsection applies to and in relation to an
authorized institution which uses the IMM approach to calculate its market
risk.

(4) The Monetary Authority may, by notice in writing given to an authorized
institution which falls within subsection (3), require the institution to make
such disclosures, in addition to any other disclosures required under this
section to be made by the institution, as the Monetary Authority considers
necessary to understand the institution's market risk positions.

(5) An authorized institution shall comply with the requirements of a notice
given to it under subsection (4).

(6) Section 281 of the Capital Rules applies to the interpretation of this
section as that section applies to the interpretation of Part 8 of the Capital
Rules.