Related provisions for BIPRU 7.4.38
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A data series is unreliable if it has, for example, missing data points, or data points which contain stale data. Reliable data series may be difficult to obtain for new products (for example an instrument of longer dated tenor that did not previously trade) and for less liquid risk factors or positions. With regard to less liquid risk factors or positions, a firm may use a combination of prudent valuation techniques and alternative VaR estimation techniques to ensure there is
3The firm's approach must be based on the assumption of a constant level of risk over the one-year capital horizon, implying that given individual trading bookpositions or sets of positions that have experienced default or migration over their liquidity horizon are re-balanced at the end of their liquidity horizon to attain the initial level of risk. Alternatively, a firm may choose consistently to use a one-year constant position assumption.
(1) 3The firm's liquidity horizons for calculating incremental risk charge must be set according to the time required to sell the position or to hedge all material and relevant price risks in a stressed market, having particular regard to the size of the position.(2) Liquidity horizons must reflect actual practice and experience during periods of both systematic and idiosyncratic stresses. The liquidity horizon must be measured under conservative assumptions and must be sufficiently
3The determination of the appropriate liquidity horizon for a position or set of positions is subject to a floor of three months. The determination of the appropriate liquidity horizon for a position or set of positions must take into account a firm's internal policies relating to valuation adjustments and the management of stale positions.
3When a firm determines liquidity horizons for sets of positions rather than for individual positions, the criteria for defining sets of positions must be defined in a way that meaningfully reflects differences in liquidity. The liquidity horizons must be greater for positions that are concentrated, reflecting the longer period needed to liquidate those positions.
3For trading bookpositions that are hedged via dynamic hedging strategies, a rebalancing of the hedge within the liquidity horizon of the hedged position may be recognised only if the firm:(1) chooses to model rebalancing of the hedge consistently over the relevant set of trading bookpositions;(2) demonstrates that the inclusion of rebalancing results in a better risk measurement;(3) demonstrates that the markets for the instruments serving as hedges are liquid enough to allow
In particular, where BIPRU 7.4.38R applies and the short position constitutes a material position compared to a firm's total commoditypositions, it should consider a further commodity PRR charge in respect of that position depending on the likelihood of a shortage of liquidity in that market.
(1) The purpose of the precautionary measure rule is to ensure that an incoming EEA firm is subject to the standards of MiFID and the MiFID implementing Directive to the extent that the Home State has not transposed MiFID or the MiFID implementing Directive by 1 November 2007. It is to 'fill a gap'.(2) The rule is made in the light of the duty of the United Kingdom under Article 62 of MiFID to adopt precautionary measures to protect investors. (3) The rule will be effective for