The Supervisory Treatment of Market Risks
Equities
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1. This section proposes a minimum capital standard to cover the risk of holding or taking positions in equities in the trading account. Comment on this aspect of the proposals is especially invited in view of the difficulty of structuring common rules that would adequately cover the price risk in different equity markets. This is a matter on which securities regulators have different views according to national perspectives in their own markets. The treatment proposed below represents the Basle Committee's preferred approach, but it could be modified in further discussions with securities regulators. 2. The proposed treatment for equities would be applied to long ant short positions in all instruments that exhibit market behaviour similar to equities, but would not apply to non convertible preferred shares.24 It is envisaged that long and short positions in the same issue could be netted. Instruments covered would include common stocks, whether voting or non-voting, warrants that give the holder the right to purchase equity securities, those convertible securities that behave like equities, options on equity securities, commitments and other rights to buy or sell equity securities and limited partnership interests. The proposed treatment of derivative products, equity indices and index arbitrage is described in II below.
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The Supervisory Treatment of Market Risks
