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The Supervisory Treatment of Market Risks

Debt securities

1. This section describes a framework for measuring the risk of holding or taking positions in debt securities in the trading account. The instruments covered would include all fixed-rate and floating-rate debt securities and instruments that behave like them, including non-convertible fixed-rate preference shares.10 The basis for dealing with derivative products is considered in III below.

2. The minimum capital requirements would be expressed in terms of two separately calculated charges, one applying to the "specific risk" of each security, whether it is a short or a long position, and the other to the interest rate risk in the portfolio (termed "general market risk")where long and short positions in different securities or instruments could be offset.


10. Traded mortgage securities and mortgage derivative products possess unique characteristics because of the risk of pre-payment. Accordingly, for the time being, no common treatment is proposed for these securities, which would be dealt with at national discretion. A security which is the subject of a repurchase or securities lending agreement would be treated as if it were still owned by the lender of the security. i.e. it would be treated in the same manner as other securities positions.

I. Specific risk

II. General market risk

III. Debt derivatives

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