This consultative document sets out a revised market risk framework and proposes a number of specific measures to improve trading book capital requirements. These proposals reflect the Committee's increased focus on achieving a regulatory framework that can be implemented consistently by supervisors and which achieves comparable levels of capital across jurisdictions.

Key elements of the proposals include:

• A more objective boundary between the trading book and the banking book that materially reduces the scope for regulatory arbitrage - feedback is sought on two alternative approaches;
• Moving from value-at-risk to expected shortfall, a risk measure that better captures "tail risk";
• Calibrating the revised framework in both the standardised and internal models-based approaches to a period of significant financial stress, consistent with the stressed value-at-risk approach adopted in Basel 2.5;
• Comprehensively incorporating the risk of market illiquidity, again consistent with the direction taken in Basel 2.5;
• Measures to reduce model risk in the internal models-based approach, including a more granular models approval process and constraints on diversification; and
• A revised standardised approach that is intended to be more risk-sensitive and act as a credible fallback to internal models.

The Committee is also proposing to strengthen the relationship between the models-based and standardised approaches by establishing a closer link between the calibration of the two approaches, requiring mandatory calculation of the standardised approach by all banks, and considering the merits of introducing the standardised approach as a floor or surcharge to the models-based approach. Furthermore, the treatment of hedging and diversification will be more closely aligned between the two approaches.

Comments on this consultative document should be submitted by Friday 7 September 2012 by e-mail to This email address is being protected from spambots. You need JavaScript enabled to view it.. Alternatively, comments may be sent by post to the Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland. All comments will be published on the Bank for International Settlements's website unless a commenter specifically requests confidential treatment.

Once the Committee has reviewed responses, it intends to release for comment a more detailed set of proposals to amend the Basel III framework. In line with its normal process, the Committee will also subject such proposals to a thorough Quantitative Impact Study.

http://www.bis.org/publ/bcbs219.htm