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

Under FRTB, which instruments are required to be assigned to the trading book regardless of the bank's intent?

Positions held for market-making or trading, such as desk inventory and accounting held-for-trading instruments, must be in the trading book. Unlisted equity, real estate and amortized-cost holdings are generally banking book items, so they do not meet the mandatory trading classification.

  1. AInstruments that are held in the accounting banking book at amortized cost
  2. BInstruments held as net short positions in the banking book of equities
  3. CInstruments held for market-making, such as positions in a desk's inventory, and those classified at fair value through profit or loss as held for tradingCorrect
  4. DReal estate holdings and unlisted equity

Explanation

FRTB places instruments held for trading or market-making, including accounting held-for-trading positions, in the trading book. Real estate and unlisted equity are banking book items, and amortized-cost holdings are generally banking book. Net short equity positions are also presumed trading book, not banking.

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