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FRM Part II · FRM Exam Part II · Fundamental Review of the Trading Book

A bank holds an equity stake in an unlisted fund and a listed equity position bought for short-term resale. Which treatment is consistent with the FRTB boundary?

The listed equity bought for short-term resale is presumed to be in the trading book, while unlisted equity is assigned to the banking book. FRTB uses purpose-based presumptions and specific exclusions, not the mere fact that both positions are equities.

  1. ABoth go to the trading book because both are equities
  2. BThe short-term resale position is presumed trading book, while unlisted equity and certain fund investments are presumed banking bookCorrect
  3. CBoth go to the banking book because equities are long-term
  4. DClassification is determined only by the currency of the position

Explanation

FRTB presumes instruments held for short-term resale or profiting from price movements are trading book, while unlisted equity is assigned to the banking book. Treating all equities identically ignores the presumption lists, and currency is irrelevant.

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