Regulatory Alerts2010-06-24
G3/10: Performing Market Risk Hypothetical Backtesting by Internal Models Approach Banks
The South African Reserve Bank issued Guidance Note G3/2010 to specify the methodology and reporting requirements for market risk hypothetical backtesting under the Internal Models Approach. The document mandates that Internal Models Approach banks calculate hypothetical profit and loss by valuing static end-of-day positions at subsequent closing prices, then compare this figure against daily value-at-risk metrics. Banks must report hypothetical backtesting exceptions on daily form BA325 and monthly form BA320, while also submitting monthly graphs displaying both value-at-risk and hypothetical profit and loss data for a minimum of 250 trading days.
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