商业银行市场风险管理指引 Market Risk Management of Commercial Banks Guidelines

loss under extremely adverse conditions. Stress testing shall include qualitative and quantitative analyses.

　　Scenarios that have major impact on market risks， including historical significant loss scenarios and hypothetical scenarios， shall be selected for stress testing.

Hypothetical scenarios include non-applicability of modelling assumptions and parameters， drastic changes in market prices， serious market illiquidity， and major changes in the external environment that may cause major loss or create difficulty in risk control. Commercial banks shall use the stress scenarios specified by the CBRC and those designed according to the business nature of the bank and market environment in stress testing.

　　Commercial banks shall， on the basis of the results of stress testing， formulate contingency plans for scenarios that have major impact on market risks and determine whether and how to improve limit management， capital allocation and other policies and procedures for market risk management. The board of directors and the senior management shall examine the design and results of stress testing regularly and enhance the stress testing procedures on an on-going basis.

　　Article 23　Commercial banks shall implement limit management on market risks， formulate internal examination and approval procedures and operational rules for each type and level of limits， and establish， regularly examine and update the limits in accordance with the nature， scale， complexity and risk tolerance of the businesses.

　　Market risk limits include trade limits， risk limits and stop-loss limits and may be broken down by region， business operation department， asset portfolio， financial instrument and risk type. Commercial banks shall， according to the different purposes of different limits in controlling risks and the limitations thereof， establish a reasonable limit system in which limits of different types and levels are complementary to one another to effectively control market risks. The overall market risk limit and the types and structure of limits of a commercial bank shall be approved by the board of directors.

　　In designing its limit system， a commercial bank shall consider the following factors：

　　1. the nature， scale and complexity of business；

　　2. the market risk level that can be borne by the commercial bank；

　　3. the track records of the business operation department；

　　4. the professional level and experience of personnel；

　　5. the pricing， valuation and market risk measurement systems；

　　6. the results of stress testing；

　　7. the level of internal control；

　　8. the capital strength； and

　　9. the development and change in the external market.

　　Commercial banks shall formulate procedures for monitoring and controlling， and handling breaches of limits. Breaches of limits shall be reported to the management at the corresponding level in a timely manner. The management at such level shall decide whether to approve the breach and the duration of the breach in accordance with limit management policies and procedures. Breaches of limit that are not approved shall be handled in accordance with limit management policies and procedures. The management shall decide whether to adjust the limit management system in light of the occurrence of breaches of limits.

　　Commercial banks shall ensure consistency among market risk limits， and shall coordinate the limit management of market risks with the limit management of other types of risks such as liquidity risk limits.

　　Article 24　Commercial banks shall establish a sound and reliable management information system for measuring， monitoring and controlling market risks， and shall adopt corresponding measures to ensure the accuracy， reliability， timeliness and security of data. The management information system shall be able to support the measurement of market risks and the back testing and stress testing it implements， and shall also be able to monitor the compliance with market risk limits and to provide relevant contents for market risk reports. Commercial banks shall establish corresponding reconciliation procedures to ensure the consistency

and completeness of the data of different departments and product lines， and to ensure that accurate pricing and business data is entered into the market risk measurement system. Commercial banks shall improve and update the management information system according to needs in a timely manner.

　　Article 25　Commercial banks shall formulate contingency plans for scenarios that have major impact on market risks， including taking measures such as hedging and reduction of risk exposure to reduce market risk level， and shall establish contingency or standby systems， procedures and measures for handling natural disasters， failure in banking system and other emergencies， in order to reduce the potential losses incurred by the bank and the potential damage to the bank‘s reputation.

　　Commercial banks shall use the results of stress testing as an important basis for formulating market risk contingency plans， and shall examine and test such contingency plans regularly and update and improve such contingency plans on an on-going basis.

　　Article 26　Reports of market risks shall be provided to the board of directors， the senior management and other management personnel in a regular and timely manner. Reports of different levels and types shall comply with the specified scope， procedures and frequency of delivery. A report shall include all or part of the following contents：

　　1. market risk positions， calculated respectively based on business， department， region and risk type；

　　2. market risk levels， calculated respectively based on business， department， region and risk type；

　　3. structural analysis of market risk positions and market risk levels；

　　4. profits and losses；

　　5. change in the methods and procedures for market risk identification， measurement， monitoring and control；

　　6. compliance with the market risk management policies and procedures；

　　7. compliance with the market risk limits， including handling of breach of limits；

　　8. particulars of back testing and stress testing；

　　9. particulars of internal and external audit；

　　10. allocation of market risk capital；

　　11. recommendations for improving market risk management policies and procedures as well as market risk contingency plans； and

　　12. other matters concerning market risk management.

　　Market risk reports submitted to the board of directors shall generally include contents such as overall market risk positions， risk levels， profits and losses and compliance with market risk limits and other market risk management policies and procedures. Market risk reports submitted to the senior management and other management personnel shall generally include detailed information broken down by region， business operation department， asset portfolio， financial instrument and risk type， and have a higher reporting frequency.

　　Section Four　Internal Control and External Audit

　　Article 27　Commercial banks shall establish a comprehensive internal control system for market risk management as an integral part of the bank‘s overall internal control system in accordance with the relevant requirements of the CBRC on internal control in commercial banks. Internal control of market risk management shall facilitate efficient business operations， provide reliable financial and regulatory reports， promote strict compliance by the bank with relevant laws， administrative regulations， departmental rules and internal systems and procedures， and ensure effective operation of the market risk management system.

　　Article 28　To avoid potential conflict of interests， a commercial bank shall ensure that the duties of each functional department are clearly defined and that related functions are properly separated. Relative independence shall be maintained between the market risk management function and the business operation function of a commercial bank.

The front office and back office of a trading department shall be strictly separated， and the trading staff of the front office shall not participate in formal confirmation of trade， reconciliation， revaluation， settlement of trade and receipt and payment. Where necessary， a middle office supervision and control mechanism may be established.

　　Article 29　Commercial banks shall avoid conflict of interests between their remuneration system and incentive system， and the objectives of market risk management. The board of directors and the senior management shall avoid the negative effect of a remuneration system that encourages excessively risk-taking investment， prevent performance appraisal from excessive emphasis on short-term investment returns without due regard to long-term investment risks. The remuneration for personnel in charge of market risk management shall not be linked to returns on direct investment.

　　Article 30　The internal audit department of a commercial bank shall regularly （at least annually） conduct an independent examination and assessment of the accuracy， reliability， adequacy and effectiveness of each component and stage of the market risk management system. Internal audit shall be conducted on both the business operation department and the department in charge of market risk management. Internal audit reports shall be submitted directly to the board of directors. The board of directors shall urge the senior management to submit improvement proposals and adopt enhancement measures for the

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