risk, currency or foreign exchange risk, interest rate risk, commodity
price risk, basis risk, or similar risks, arising in connection with
and related to identified positions, contracts, or other holdings of
the banking entity, based upon the facts and circumstances of the
identified underlying and hedging positions, contracts or other
holdings and the risks and liquidity thereof;
    (C) Does not give rise, at the inception of the hedge, to any
significant new or additional risk that is not itself hedged
contemporaneously in accordance with this section;
    (D) Is subject to continuing review, monitoring and management by
the banking entity that:
    (1) Is consistent with the written hedging policies and procedures
required under paragraph (b)(1)(i) of this section;
    (2) Is designed to reduce or otherwise significantly mitigate the
specific, identifiable risks that develop over time from the risk-
mitigating hedging activities undertaken under this section and the
underlying positions, contracts, and other holdings of the banking
entity, based upon the facts and circumstances of the underlying and
hedging positions, contracts and other holdings of the banking entity
and the risks and liquidity thereof; and
    (3) Requires ongoing recalibration of the hedging activity by the
banking entity to ensure that the hedging activity satisfies the
requirements set out in paragraph (b)(1)(ii) of this section and is not
prohibited proprietary trading; and
    (iii) The compensation arrangements of persons performing risk-
mitigating hedging activities are designed not to reward or incentivize
prohibited proprietary trading.
    (2) The risk-mitigating hedging activities of a banking entity that
does not have significant trading assets and liabilities are permitted
under paragraph (a) of this section only if the risk-mitigating hedging
activity:
    (i) At the inception of the hedging activity, including, without
limitation, any adjustments to the hedging activity, is designed to
reduce or otherwise significantly mitigate one or more specific,
identifiable risks, including market risk, counterparty or other credit
risk, currency or foreign exchange risk, interest rate risk, commodity
price risk, basis risk, or similar risks, arising in connection with
and related to identified positions, contracts, or other holdings of
the banking entity, based upon the facts and circumstances of the
identified underlying and hedging positions, contracts or other
holdings and the risks and liquidity thereof; and
    (ii) Is subject, as appropriate, to ongoing recalibration by the
banking entity to ensure that the hedging activity satisfies the
requirements set out in paragraph (b)(2) of this section and is not
prohibited proprietary trading.
    (c) * * * (1) A banking entity that has significant trading assets
and liabilities must comply with the requirements of paragraphs (c)(2)
and (3) of this section, unless the requirements of paragraph (c)(4) of
this section are met, with respect to any purchase or sale of financial
instruments made in reliance on this section for risk-mitigating
hedging purposes that is:
* * * * *
    (4) The requirements of paragraphs (c)(2) and (3) of this section
do not apply to the purchase or sale of a financial instrument
described in paragraph (c)(1) of this section if:
    (i) The financial instrument purchased or sold is identified on a
written list of pre-approved financial instruments that are commonly
used by the trading desk for the specific type of hedging activity for
which the financial instrument is being purchased or sold; and
    (ii) At the time the financial instrument is purchased or sold, the
hedging activity (including the purchase or sale of the financial
instrument) complies with written, pre-approved hedging limits for the
trading desk purchasing or selling the financial instrument for hedging
activities undertaken for one or more other trading desks. The hedging
limits shall be appropriate for the:
    (A) Size, types, and risks of the hedging activities commonly
undertaken by the trading desk;
    (B) Financial instruments purchased and sold for hedging activities
by the trading desk; and
    (C) Levels and duration of the risk exposures being hedged.
0
6. Section 44.6 is amended by revising paragraph (e)(3) and removing
paragraph (e)(6) to read as follows:

Sec.  44.6   Other permitted proprietary trading activities.

* * * * *
    (e) * * *
    (3) A purchase or sale by a banking entity is permitted for
purposes of this paragraph (e) if:
    (i) The banking entity engaging as principal in the purchase or
sale (including relevant personnel) is not located in the United States
or organized under the laws of the United States or of any State;
    (ii) The banking entity (including relevant personnel) that makes
the decision to purchase or sell as principal is not located in the
United States or organized under the laws of the United States or of
any State; and
    (iii) The purchase or sale, including any transaction arising from
risk-mitigating hedging related to the instruments purchased or sold,
is not accounted for as principal directly or on a consolidated basis
by any branch or affiliate that is located in the United States or
organized under the laws of the United States or of any State.
* * * * *

Sec.  44.10  [Amended]

0
7. Section 44.10 is amended by:
0
a. In paragraph (c)(8)(i)(A) removing ``Sec.  44.2(s)'' and adding
``Sec.  44.2(u)'' in its place;
0
b. Removing paragraph (d)(1);
0
c. Redesignating paragraphs (d)(2) through (d)(10) as paragraphs (d)(1)
through (d)(9);
0
d. In paragraph (d)(5)(i)(G) revising the reference to ``(d)(6)(i)(A)''
to read ``(d)(5)(i)(A)''; and
0
e. In paragraph (d)(9) revising the reference to ``(d)(9)'' to read
``(d)(8)'' and the reference to ``(d)(10)(i)(A)'' to read
``(d)(9)(i)(A)'' and the reference to ``(d)(10)(i)'' to read
``(d)(9)(i)''.
0
8. Section 44.11 is amended by revising paragraph (c) as follows:

Sec.  44.11  Permitted organizing and offering, underwriting, and
market making with respect to a covered fund.

* * * * *
    (c) Underwriting and market making in ownership interests of a
covered fund. The prohibition contained in Sec.  44.10(a) of this
subpart does not apply to a banking entity's underwriting activities or
market making-related activities involving a covered fund so long as:
    (1) Those activities are conducted in accordance with the
requirements of Sec.  44.4(a) or Sec.  44.4(b) of subpart B,
respectively; and
    (2) With respect to any banking entity (or any affiliate thereof)
that: Acts as a sponsor, investment adviser or commodity trading
advisor to a particular covered fund or otherwise acquires and retains
an ownership interest in such covered fund in reliance on paragraph (a)
of this section; or acquires and retains an ownership interest in such
covered fund and is

either a securitizer, as that term is used in section 15G(a)(3) of the
Exchange Act (15 U.S.C. 78o-11(a)(3)), or is acquiring and retaining an
ownership interest in such covered fund in compliance with section 15G
of that Act (15 U.S.C.78o-11) and the implementing regulations issued
thereunder each as permitted by paragraph (b) of this section, then in
each such case any ownership interests acquired or retained by the
banking entity and its affiliates in connection with underwriting and
market making related activities for that particular covered fund are
included in the calculation of ownership interests permitted to be held
by the banking entity and its affiliates under the limitations of Sec.
44.12(a)(2)(ii); Sec.  44.12(a)(2)(iii), and Sec.  44.12(d) of this
subpart.

Sec.  44.12  [Amended]

0
9. Section 44.12 is amended by:
0
a. In paragraphs (c)(1) and (d) removing ``Sec.  44.10(d)(6)(ii)'' and
adding ``Sec.  44.10(d)(5)(ii)'' in its place;
0
b. Removing paragraph (e)(2)(vii); and
0
c. Redesignating the second instance of paragraph (e)(2)(vi) as
paragraph (e)(2)(vii).
0
10. Section 44.13 is amended by revising paragraphs (a) and (b)(3) and
removing paragraph (b)(4)(iv) to read as follows:

Sec.  44.13  Other permitted covered fund activities and investments.

    (a) Permitted risk-mitigating hedging activities. (1) The
prohibition contained in Sec.  44.10(a) of this subpart does not apply
with respect to an ownership interest in a covered fund acquired or
retained by a banking entity that is designed to reduce or otherwise
significantly mitigate the specific, identifiable risks to the banking
entity in connection with:
    (i) A compensation arrangement with an employee of the banking
entity or an affiliate thereof that directly provides investment
advisory, commodity trading advisory or other services to the covered
fund; or
    (ii) A position taken by the banking entity when acting as
intermediary on behalf of a customer that is not itself a banking
entity to facilitate the exposure by the customer to the profits and
losses of the covered fund.
    (2) Requirements. The risk-mitigating hedging activities of a
banking entity are permitted under this paragraph (a) only if:
    (i) The banking entity has established and implements, maintains
and enforces an internal compliance program in accordance with subpart
D of this part that is reasonably designed to ensure the banking
entity's compliance with the requirements of this section, including:
    (A) Reasonably designed written policies and procedures; and
    (B) Internal controls and ongoing monitoring, management, and
authorization procedures, including relevant escalation procedures; and
    (ii) The acquisition or retention of the ownership interest:
    (A) Is made in accordance with the written policies, procedures,
and internal controls required under this section;
    (B) At the inception of the hedge, is designed to reduce or
otherwise significantly mitigate one or more specific, identifiable
risks arising:
    (1) Out of a transaction conducted solely to accommodate a specific
customer request with respect to the covered fund; or
    (2) In connection with the compensation arrangement with the
employee that directly provides investment advisory, commodity trading
advisory, or other services to the covered fund;
    (C) Does not give rise, at the inception of the hedge, to any
significant new or additional risk that is not itself hedged
contemporaneously in accordance with this section; and
    (D) Is subject to continuing review, monitoring and management by
the banking entity.
    (iii) With respect to risk-mitigating hedging activity conducted
pursuant to paragraph (a)(1)(i), the compensation arrangement relates
solely to the covered fund in which the banking entity or any affiliate
has acquired an ownership interest pursuant to paragraph (a)(1)(i) and
such compensation arrangement provides that any losses incurred by the
banking entity on such ownership interest will be offset by
corresponding decreases in amounts payable under such compensation
arrangement.
    (b) * * *
    (3) An ownership interest in a covered fund is not offered for sale
or sold to a resident of the United States for purposes of paragraph
(b)(1)(iii) of this section only if it is not sold and has not been
sold pursuant to an offering that targets residents of the United
States in which the banking entity or any affiliate of the banking
entity participates. If the banking entity or an affiliate sponsors or
serves, directly or indirectly, as the investment manager, investment
adviser, commodity pool operator or commodity trading advisor to a
covered fund, then the banking entity or affiliate will be deemed for
purposes of this paragraph (b)(3) to participate in any offer or sale
by the covered fund of ownership interests in the covered fund.
* * * * *
0
11. Section 44.14 is amended by revising paragraph (a)(2)(ii)(B) as
follows:

Sec.  44.14   Limitations on relationships with a covered fund.

    (a) * * *
    (2) * * *
    (ii) * * *
    (B) The chief executive officer (or equivalent officer) of the
banking entity certifies in writing annually no later than March 31 to
the OCC (with a duty to update the certification if the information in
the certification materially changes) that the banking entity does not,
directly or indirectly, guarantee, assume, or otherwise insure the
obligations or performance of the covered fund or of any covered fund
in which such covered fund invests; and
* * * * *
0
12. Section 44.20 is amended by:
0
a. Revising paragraph (a);
0
b. Revising the introductory text of paragraph (b);
0
c. Revising paragraph (c);
0
d. Revising paragraph (d);
0
e. Revising the introductory text of paragraph (e);
0
f. Revising paragraph (f)(2); and
0
g. Adding new paragraphs (g) and (h).
    The revisions read as follows:

Sec.  44.20  Program for compliance; reporting.

    (a) Program requirement. Each banking entity (other than a banking
entity with limited trading assets and liabilities) shall develop and
provide for the continued administration of a compliance program
reasonably designed to ensure and monitor compliance with the
prohibitions and restrictions on proprietary trading and covered fund
activities and investments set forth in section 13 of the BHC Act and
this part. The terms, scope, and detail of the compliance program shall
be appropriate for the types, size, scope, and complexity of activities
and business structure of the banking entity.
    (b) Banking entities with significant trading assets and
liabilities. With respect to a banking entity with significant trading
assets and liabilities, the compliance program required by paragraph
(a) of this section, at a minimum, shall include:
* * * * *
    (c) CEO attestation.
    (1) The CEO of a banking entity described in paragraph (2) must,
based on a review by the CEO of the banking entity, attest in writing
to the OCC, each year no later than March 31, that the banking entity
has in place processes

reasonably designed to achieve compliance with section 13 of the BHC
Act and this part. In the case of a U.S. branch or agency of a foreign
banking entity, the attestation may be provided for the entire U.S.
operations of the foreign banking entity by the senior management
officer of the U.S. operations of the foreign banking entity who is
located in the United States.
    (2) The requirements of paragraph (c)(1) apply to a banking entity
if:
    (i) The banking entity does not have limited trading assets and
liabilities; or
    (ii) The OCC notifies the banking entity in writing that it must
satisfy the requirements contained in paragraph (c)(1).
    (d) Reporting requirements under the Appendix to this part. (1) A
banking entity engaged in proprietary trading activity permitted under
subpart B shall comply with the reporting requirements described in the
Appendix, if:
    (i) The banking entity has significant trading assets and
liabilities; or
    (ii) The OCC notifies the banking entity in writing that it must
satisfy the reporting requirements contained in the Appendix.
    (2) Frequency of reporting: Unless the OCC notifies the banking
entity in writing that it must report on a different basis, a banking
entity with $50 billion or more in trading assets and liabilities (as
calculated in accordance with the methodology described in the
definition of ``significant trading assets and liabilities'' contained
in Sec.  44.2 of this part of this part) shall report the information
required by the Appendix for each calendar month within 20 days of the
end of each calendar month. Any other banking entity subject to the
Appendix shall report the information required by the Appendix for each
calendar quarter within 30 days of the end of that calendar quarter
unless the OCC notifies the banking entity in writing that it must
report on a different basis.
    (e) Additional documentation for covered funds. A banking entity
with significant trading assets and liabilities shall maintain records
that include:
* * * * *
    (f) * * *
    (2) Banking entities with moderate trading assets and liabilities.
A banking entity with moderate trading assets and liabilities may
satisfy the requirements of this section by including in its existing
compliance policies and procedures appropriate references to the
requirements of section 13 of the BHC Act and this part and adjustments
as appropriate given the activities, size, scope, and complexity of the
banking entity.
    (g) Rebuttable presumption of compliance for banking entities with
limited trading assets and liabilities.
    (1) Rebuttable presumption. Except as otherwise provided in this
paragraph, a banking entity with limited trading assets and liabilities
shall be presumed to be compliant with subpart B and subpart C and
shall have no obligation to demonstrate compliance with this part on an
ongoing basis.
    (2) Rebuttal of presumption. (i) If upon examination or audit, the
OCC determines that the banking entity has engaged in proprietary
trading or covered fund activities that are otherwise prohibited under
subpart B or subpart C, the OCC may require the banking entity to be
treated under this part as if it did not have limited trading assets
and liabilities.
    (ii) Notice and Response Procedures. (A) Notice. The OCC will
notify the banking entity in writing of any determination pursuant to
paragraph (g)(2)(i) of this section to rebut the presumption described
in this paragraph (g) and will provide an explanation of the
determination.
    (B) Response. (1) The banking entity may respond to any or all
items in the notice described in paragraph (g)(2)(ii)(A) of this
section. The response should include any matters that the banking
entity would have the OCC consider in deciding whether the banking
entity has engaged in proprietary trading or covered fund activities
prohibited under subpart B or subpart C. The response must be in
writing and delivered to the designated OCC official within 30 days
after the date on which the banking entity received the notice. The OCC
may shorten the time period when, in the opinion of the OCC, the
activities or condition of the banking entity so requires, provided
that the banking entity is informed promptly of the new time period, or
with the consent of the banking entity. In its discretion, the OCC may
extend the time period for good cause.
    (2) Failure to respond within 30 days or such other time period as
may be specified by the OCC shall constitute a waiver of any objections
to the OCC's determination.
    (C) After the close of banking entity's response period, the OCC
will decide, based on a review of the banking entity's response and
other information concerning the banking entity, whether to maintain
the OCC's determination that banking entity has engaged in proprietary
trading or covered fund activities prohibited under subpart B or
subpart C. The banking entity will be notified of the decision in
writing. The notice will include an explanation of the decision.
    (h) Reservation of authority. Notwithstanding any other provision
of this part, the OCC retains its authority to require a banking entity
without significant trading assets and liabilities to apply any
requirements of this part that would otherwise apply if the banking
entity had significant or moderate trading assets and liabilities if
the OCC determines that the size or complexity of the banking entity's
trading or investment activities, or the risk of evasion of subpart B
or subpart C, does not warrant a presumption of compliance under
paragraph (g) of this section or treatment as a banking entity with
moderate trading assets and liabilities, as applicable.
0
13. Remove Appendix A and Appendix B to Part 44 and add Appendix to
Part 44--Reporting and Recordkeeping Requirements for Covered Trading
Activities

Appendix to Part 44--Reporting and Recordkeeping Requirements for
Covered Trading Activities

I. Purpose

    a. This appendix sets forth reporting and recordkeeping
requirements that certain banking entities must satisfy in
connection with the restrictions on proprietary trading set forth in
subpart B (``proprietary trading restrictions''). Pursuant to Sec.
44.20(d), this appendix applies to a banking entity that, together
with its affiliates and subsidiaries, has significant trading assets
and liabilities. These entities are required to (i) furnish periodic
reports to the OCC regarding a variety of quantitative measurements
of their covered trading activities, which vary depending on the
scope and size of covered trading activities, and (ii) create and
maintain records documenting the preparation and content of these
reports. The requirements of this appendix must be incorporated into
the banking entity's internal compliance program under Sec.  44.20.
    b. The purpose of this appendix is to assist banking entities
and the OCC in:
    (i) Better understanding and evaluating the scope, type, and
profile of the banking entity's covered trading activities;
    (ii) Monitoring the banking entity's covered trading activities;
    (iii) Identifying covered trading activities that warrant
further review or examination by the banking entity to verify
compliance with the proprietary trading restrictions;
    (iv) Evaluating whether the covered trading activities of
trading desks engaged in market making-related activities subject to
Sec.  44.4(b) are consistent with the requirements governing
permitted market making-related activities;
    (v) Evaluating whether the covered trading activities of trading
desks that are engaged in permitted trading activity subject to
Sec. Sec.  44.4, 44.5, or 44.6(a)-(b) (i.e., underwriting and market
making-related related activity, risk-mitigating hedging, or trading
in certain

government obligations) are consistent with the requirement that
such activity not result, directly or indirectly, in a material
exposure to high-risk assets or high-risk trading strategies;
    (vi) Identifying the profile of particular covered trading
activities of the banking entity, and the individual trading desks
of the banking entity, to help establish the appropriate frequency
and scope of examination by the OCC of such activities; and
    (vii) Assessing and addressing the risks associated with the
banking entity's covered trading activities.
    c. Information that must be furnished pursuant to this appendix
is not intended to serve as a dispositive tool for the
identification of permissible or impermissible activities.
    d. In addition to the quantitative measurements required in this
appendix, a banking entity may need to develop and implement other
quantitative measurements in order to effectively monitor its
covered trading activities for compliance with section 13 of the BHC
Act and this part and to have an effective compliance program, as
required by Sec.  44.20. The effectiveness of particular
quantitative measurements may differ based on the profile of the
banking entity's businesses in general and, more specifically, of
the particular trading desk, including types of instruments traded,
trading activities and strategies, and history and experience (e.g.,
whether the trading desk is an established, successful market maker
or a new entrant to a competitive market). In all cases, banking
entities must ensure that they have robust measures in place to
identify and monitor the risks taken in their trading activities, to
ensure that the activities are within risk tolerances established by
the banking entity, and to monitor and examine for compliance with
the proprietary trading restrictions in this part.
    e. On an ongoing basis, banking entities must carefully monitor,
review, and evaluate all furnished quantitative measurements, as
well as any others that they choose to utilize in order to maintain
compliance with section 13 of the BHC Act and this part. All
measurement results that indicate a heightened risk of impermissible
proprietary trading, including with respect to otherwise-permitted
activities under Sec. Sec.  44.4 through 44.6(a)-(b), or that result
in a material exposure to high-risk assets or high-risk trading
strategies, must be escalated within the banking entity for review,
further analysis, explanation to the OCC, and remediation, where
appropriate. The quantitative measurements discussed in this
appendix should be helpful to banking entities in identifying and
managing the risks related to their covered trading activities.

II. Definitions

    The terms used in this appendix have the same meanings as set
forth in Sec. Sec.  44.2 and 44.3. In addition, for purposes of this
appendix, the following definitions apply:
    Applicability identifies the trading desks for which a banking
entity is required to calculate and report a particular quantitative
measurement based on the type of covered trading activity conducted
by the trading desk.
    Calculation period means the period of time for which a
particular quantitative measurement must be calculated.
    Comprehensive profit and loss means the net profit or loss of a
trading desk's material sources of trading revenue over a specific
period of time, including, for example, any increase or decrease in
the market value of a trading desk's holdings, dividend income, and
interest income and expense.
    Covered trading activity means trading conducted by a trading
desk under Sec. Sec.  44.4, 44.5, 44.6(a), or 44.6(b). A banking
entity may include in its covered trading activity trading conducted
under Sec. Sec.  44.3(e), 44.6(c), 44.6(d), or 44.6(e).
    Measurement frequency means the frequency with which a
particular quantitative metric must be calculated and recorded.
    Trading day means a calendar day on which a trading desk is open
for trading.

III. Reporting and Recordkeeping

a. Scope of Required Reporting

    1. Quantitative measurements. Each banking entity made subject
to this appendix by Sec.  44.20 must furnish the following
quantitative measurements, as applicable, for each trading desk of
the banking entity engaged in covered trading activities and
calculate these quantitative measurements in accordance with this
appendix:
    i. Risk and Position Limits and Usage;
    ii. Risk Factor Sensitivities;
    iii. Value-at-Risk and Stressed Value-at-Risk;
    iv Comprehensive Profit and Loss Attribution;
    v. Positions;
    vi. Transaction Volumes; and
    vii. Securities Inventory Aging.
    2. Trading desk information. Each banking entity made subject to
this appendix by Sec.  44.20 must provide certain descriptive
information, as further described in this appendix, regarding each
trading desk engaged in covered trading activities.
    3. Quantitative measurements identifying information. Each
banking entity made subject to this appendix by Sec.  44.20 must
provide certain identifying and descriptive information, as further
described in this appendix, regarding its quantitative measurements.
    4. Narrative statement. Each banking entity made subject to this
appendix by Sec.  44.20 must provide a separate narrative statement,
as further described in this appendix.
    5. File identifying information. Each banking entity made
subject to this appendix by Sec.  44.20 must provide file
identifying information in each submission to the OCC pursuant to
this appendix, including the name of the banking entity, the RSSD ID
assigned to the top-tier banking entity by the Board, and
identification of the reporting period and creation date and time.

b. Trading Desk Information

    1. Each banking entity must provide descriptive information
regarding each trading desk engaged in covered trading activities,
including:
    i. Name of the trading desk used internally by the banking
entity and a unique identification label for the trading desk;
    ii. Identification of each type of covered trading activity in
which the trading desk is engaged;
    iii. Brief description of the general strategy of the trading
desk;
    iv. A list of the types of financial instruments and other
products purchased and sold by the trading desk; an indication of
which of these are the main financial instruments or products
purchased and sold by the trading desk; and, for trading desks
engaged in market making-related activities under Sec.  44.4(b),
specification of whether each type of financial instrument is
included in market-maker positions or not included in market-maker
positions. In addition, indicate whether the trading desk is
including in its quantitative measurements products excluded from
the definition of ``financial instrument'' under Sec.  44.3(d)(2)
and, if so, identify such products;
    v. Identification by complete name of each legal entity that
serves as a booking entity for covered trading activities conducted
by the trading desk; and indication of which of the identified legal
entities are the main booking entities for covered trading
activities of the trading desk;
    vi. For each legal entity that serves as a booking entity for
covered trading activities, specification of any of the following
applicable entity types for that legal entity:
    A. National bank, Federal branch or Federal agency of a foreign
bank, Federal savings association, Federal savings bank;
    B. State nonmember bank, foreign bank having an insured branch,
State savings association;
    C. U.S.-registered broker-dealer, U.S.-registered security-based
swap dealer, U.S.-registered major security-based swap participant;
    D. Swap dealer, major swap participant, derivatives clearing
organization, futures commission merchant, commodity pool operator,
commodity trading advisor, introducing broker, floor trader, retail
foreign exchange dealer;
    E. State member bank;
    F. Bank holding company, savings and loan holding company;
    G. Foreign banking organization as defined in 12 CFR 211.21(o);
    H. Uninsured State-licensed branch or agency of a foreign bank;
or
    I. Other entity type not listed above, including a subsidiary of
a legal entity described above where the subsidiary itself is not an
entity type listed above;
    vii. Indication of whether each calendar date is a trading day
or not a trading day for the trading desk; and
    viii. Currency reported and daily currency conversion rate.

c. Quantitative Measurements Identifying Information

    1. Each banking entity must provide the following information
regarding the quantitative measurements:
    i. A Risk and Position Limits Information Schedule that provides
identifying and descriptive information for each limit

reported pursuant to the Risk and Position Limits and Usage
quantitative measurement, including the name of the limit, a unique
identification label for the limit, a description of the limit,
whether the limit is intraday or end-of-day, the unit of measurement
for the limit, whether the limit measures risk on a net or gross
basis, and the type of limit;
    ii. A Risk Factor Sensitivities Information Schedule that
provides identifying and descriptive information for each risk
factor sensitivity reported pursuant to the Risk Factor
Sensitivities quantitative measurement, including the name of the
sensitivity, a unique identification label for the sensitivity, a
description of the sensitivity, and the sensitivity's risk factor
change unit;
    iii. A Risk Factor Attribution Information Schedule that
provides identifying and descriptive information for each risk
factor attribution reported pursuant to the Comprehensive Profit and
Loss Attribution quantitative measurement, including the name of the
risk factor or other factor, a unique identification label for the
risk factor or other factor, a description of the risk factor or
other factor, and the risk factor or other factor's change unit;
    iv. A Limit/Sensitivity Cross-Reference Schedule that cross-
references, by unique identification label, limits identified in the
Risk and Position Limits Information Schedule to associated risk
factor sensitivities identified in the Risk Factor Sensitivities
Information Schedule; and
    v. A Risk Factor Sensitivity/Attribution Cross-Reference
Schedule that cross-references, by unique identification label, risk
factor sensitivities identified in the Risk Factor Sensitivities
Information Schedule to associated risk factor attributions
identified in the Risk Factor Attribution Information Schedule.

d. Narrative Statement

    1. Each banking entity made subject to this appendix by Sec.
44.20 must submit in a separate electronic document a Narrative
Statement to the OCC describing any changes in calculation methods
used, a description of and reasons for changes in the banking
entity's trading desk structure or trading desk strategies, and when
any such change occurred. The Narrative Statement must include any
information the banking entity views as relevant for assessing the
information reported, such as further description of calculation
methods used.
    2. If a banking entity does not have any information to report
in a Narrative Statement, the banking entity must submit an
electronic document stating that it does not have any information to
report in a Narrative Statement.

e. Frequency and Method of Required Calculation and Reporting

    A banking entity must calculate any applicable quantitative
measurement for each trading day. A banking entity must report the
Narrative Statement, the Trading Desk Information, the Quantitative
Measurements Identifying Information, and each applicable
quantitative measurement electronically to the OCC on the reporting
schedule established in Sec.  44.20 unless otherwise requested by
the OCC. A banking entity must report the Trading Desk Information,
the Quantitative Measurements Identifying Information, and each
applicable quantitative measurement to the OCC in accordance with
the XML Schema specified and published on the OCC's website.

f. Recordkeeping

    A banking entity must, for any quantitative measurement
furnished to the OCC pursuant to this appendix and Sec.  44.20(d),
create and maintain records documenting the preparation and content
of these reports, as well as such information as is necessary to
permit the OCC to verify the accuracy of such reports, for a period
of five years from the end of the calendar year for which the
measurement was taken. A banking entity must retain the Narrative
Statement, the Trading Desk Information, and the Quantitative
Measurements Identifying Information for a period of five years from
the end of the calendar year for which the information was reported
to the OCC.

IV. Quantitative Measurements

a. Risk-Management Measurements

1. Risk and Position Limits and Usage

    i. Description: For purposes of this appendix, Risk and Position
Limits are the constraints that define the amount of risk that a
trading desk is permitted to take at a point in time, as defined by
the banking entity for a specific trading desk. Usage represents the
value of the trading desk's risk or positions that are accounted for
by the current activity of the desk. Risk and position limits and
their usage are key risk management tools used to control and
monitor risk taking and include, but are not limited to, the limits
set out in Sec.  44.4 and Sec.  44.5. A number of the metrics that
are described below, including ``Risk Factor Sensitivities'' and
``Value-at-Risk,'' relate to a trading desk's risk and position
limits and are useful in evaluating and setting these limits in the
broader context of the trading desk's overall activities,
particularly for the market making activities under Sec.  44.4(b)
and hedging activity under Sec.  44.5. Accordingly, the limits
required under Sec.  44.4(b)(2)(iii) and Sec.  44.5(b)(1)(i)(A) must
meet the applicable requirements under Sec.  44.4(b)(2)(iii) and
Sec.  44.5(b)(1)(i)(A) and also must include appropriate metrics for
the trading desk limits including, at a minimum, the ``Risk Factor
Sensitivities'' and ``Value-at-Risk'' metrics except to the extent
any of the ``Risk Factor Sensitivities'' or ``Value-at-Risk''
metrics are demonstrably ineffective for measuring and monitoring
the risks of a trading desk based on the types of positions traded
by, and risk exposures of, that desk.
    A. A banking entity must provide the following information for
each limit reported pursuant to this quantitative measurement: The
unique identification label for the limit reported in the Risk and
Position Limits Information Schedule, the limit size (distinguishing
between an upper and a lower limit), and the value of usage of the
limit.
    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks engaged in covered trading
activities.

2. Risk Factor Sensitivities

    i. Description: For purposes of this appendix, Risk Factor
Sensitivities are changes in a trading desk's Comprehensive Profit
and Loss that are expected to occur in the event of a change in one
or more underlying variables that are significant sources of the
trading desk's profitability and risk. A banking entity must report
the risk factor sensitivities that are monitored and managed as part
of the trading desk's overall risk management policy. Reported risk
factor sensitivities must be sufficiently granular to account for a
preponderance of the expected price variation in the trading desk's
holdings. A banking entity must provide the following information
for each sensitivity that is reported pursuant to this quantitative
measurement: The unique identification label for the risk factor
sensitivity listed in the Risk Factor Sensitivities Information
Schedule, the change in risk factor used to determine the risk
factor sensitivity, and the aggregate change in value across all
positions of the desk given the change in risk factor.
    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks engaged in covered trading
activities.

3. Value-at-Risk and Stressed Value-at-Risk

    i. Description: For purposes of this appendix, Value-at-Risk
(``VaR'') is the measurement of the risk of future financial loss in
the value of a trading desk's aggregated positions at the ninety-
nine percent confidence level over a one-day period, based on
current market conditions. For purposes of this appendix, Stressed
Value-at-Risk (``Stressed VaR'') is the measurement of the risk of
future financial loss in the value of a trading desk's aggregated
positions at the ninety-nine percent confidence level over a one-day
period, based on market conditions during a period of significant
financial stress.
    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: For VaR, all trading desks engaged in covered
trading activities. For Stressed VaR, all trading desks engaged in
covered trading activities, except trading desks whose covered
trading activity is conducted exclusively to hedge products excluded
from the definition of ``financial instrument'' under Sec.
44.3(d)(2).

b. Source-of-Revenue Measurements

1. Comprehensive Profit and Loss Attribution

    i. Description: For purposes of this appendix, Comprehensive
Profit and Loss Attribution is an analysis that attributes the daily
fluctuation in the value of a trading desk's positions to various
sources. First, the daily profit and loss of the aggregated
positions is divided into three categories: (i) Profit and loss
attributable to a trading desk's existing positions that were also
positions held by the trading desk as of the end of the prior day
(``existing positions''); (ii) profit and loss attributable to new
positions resulting from the current day's trading activity (``new
positions''); and (iii) residual profit and loss that cannot be
specifically

attributed to existing positions or new positions. The sum of (i),
(ii), and (iii) must equal the trading desk's comprehensive profit
and loss at each point in time.
    A. The comprehensive profit and loss associated with existing
positions must reflect changes in the value of these positions on
the applicable day.
    The comprehensive profit and loss from existing positions must
be further attributed, as applicable, to changes in (i) the specific
risk factors and other factors that are monitored and managed as
part of the trading desk's overall risk management policies and
procedures; and (ii) any other applicable elements, such as cash
flows, carry, changes in reserves, and the correction, cancellation,
or exercise of a trade.
    B. For the attribution of comprehensive profit and loss from
existing positions to specific risk factors and other factors, a
banking entity must provide the following information for the
factors that explain the preponderance of the profit or loss changes
due to risk factor changes: The unique identification label for the
risk factor or other factor listed in the Risk Factor Attribution
Information Schedule, and the profit or loss due to the risk factor
or other factor change.
    C. The comprehensive profit and loss attributed to new positions
must reflect commissions and fee income or expense and market gains
or losses associated with transactions executed on the applicable
day. New positions include purchases and sales of financial
instruments and other assets/liabilities and negotiated amendments
to existing positions. The comprehensive profit and loss from new
positions may be reported in the aggregate and does not need to be
further attributed to specific sources.
    D. The portion of comprehensive profit and loss that cannot be
specifically attributed to known sources must be allocated to a
residual category identified as an unexplained portion of the
comprehensive profit and loss. Significant unexplained profit and
loss must be escalated for further investigation and analysis.
    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks engaged in covered trading
activities.

c. Positions, Transaction Volumes, and Securities Inventory Aging
Measurements

1. Positions

    i. Description: For purposes of this appendix, Positions is the
value of securities and derivatives positions managed by the trading
desk. For purposes of the Positions quantitative measurement, do not
include in the Positions calculation for ``securities'' those
securities that are also ``derivatives,'' as those terms are defined
under subpart A; instead, report those securities that are also
derivatives as ``derivatives.'' \418\ A banking entity must
separately report the trading desk's market value of long securities
positions, market value of short securities positions, market value
of derivatives receivables, market value of derivatives payables,
notional value of derivatives receivables, and notional value of
derivatives payables.
---------------------------------------------------------------------------

    \418\ See Sec. Sec.  44.2(i), (bb). For example, under this
part, a security-based swap is both a ``security'' and a
``derivative.'' For purposes of the Positions quantitative
measurement, security-based swaps are reported as derivatives rather
than securities.
---------------------------------------------------------------------------

    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks that rely on Sec.  44.4(a)
or Sec.  44.4(b) to conduct underwriting activity or market-making-
related activity, respectively.

2. Transaction Volumes

    i. Description: For purposes of this appendix, Transaction
Volumes measures four exclusive categories of covered trading
activity conducted by a trading desk. A banking entity is required
to report the value and number of security and derivative
transactions conducted by the trading desk with: (i) Customers,
excluding internal transactions; (ii) non-customers, excluding
internal transactions; (iii) trading desks and other organizational
units where the transaction is booked in the same banking entity;
and (iv) trading desks and other organizational units where the
transaction is booked into an affiliated banking entity. For
securities, value means gross market value. For derivatives, value
means gross notional value. For purposes of calculating the
Transaction Volumes quantitative measurement, do not include in the
Transaction Volumes calculation for ``securities'' those securities
that are also ``derivatives,'' as those terms are defined under
subpart A; instead, report those securities that are also
derivatives as ``derivatives.'' \419\ Further, for purposes of the
Transaction Volumes quantitative measurement, a customer of a
trading desk that relies on Sec.  44.4(a) to conduct underwriting
activity is a market participant identified in Sec.  44.4(a)(7), and
a customer of a trading desk that relies on Sec.  44.4(b) to conduct
market making-related activity is a market participant identified in
Sec.  44.4(b)(3).
---------------------------------------------------------------------------

    \419\ See Sec. Sec.  44.2(i), (bb).
---------------------------------------------------------------------------

    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks that rely on Sec.  44.4(a)
or Sec.  44.4(b) to conduct underwriting activity or market-making-
related activity, respectively.

3. Securities Inventory Aging

    i. Description: For purposes of this appendix, Securities
Inventory Aging generally describes a schedule of the market value
of the trading desk's securities positions and the amount of time
that those securities positions have been held. Securities Inventory
Aging must measure the age profile of a trading desk's securities
positions for the following periods: 0-30 calendar days; 31-60
calendar days; 61-90 calendar days; 91-180 calendar days; 181-360
calendar days; and greater than 360 calendar days. Securities
Inventory Aging includes two schedules, a security asset-aging
schedule, and a security liability-aging schedule. For purposes of
the Securities Inventory Aging quantitative measurement, do not
include securities that are also ``derivatives,'' as those terms are
defined under subpart A.\420\
---------------------------------------------------------------------------

    \420\ See Sec. Sec.  44.2(i), (bb).
---------------------------------------------------------------------------

    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks that rely on Sec.  44.4(a)
or Sec.  44.4(b) to conduct underwriting activity or market-making
related activity, respectively.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the Common Preamble the Board proposes
to amend chapter II of title 12 of the Code of Federal Regulations as
follows:

PART 248--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS (REGULATION VV)

0
14. The authority citation for part 248 continues to read as follows:

    Authority:  12 U.S.C. 1851, 12 U.S.C. 221 et seq., 12 U.S.C.
1818, 12 U.S.C. 1841 et seq., and 12 U.S.C. 3103 et seq.

Subpart A--Authority and Definitions

0
15. Section 248.2 is revised as follows:

Sec.  248.2   Definitions.

    Unless otherwise specified, for purposes of this part:
    (a) Affiliate has the same meaning as in section 2(k) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(k)).
    (b) Applicable accounting standards means U.S. generally accepted
accounting principles, or such other accounting standards applicable to
a banking entity that the [Agency] determines are appropriate and that
the banking entity uses in the ordinary course of its business in
preparing its consolidated financial statements.
    (c) Bank holding company has the same meaning as in section 2 of
the Bank Holding Company Act of 1956 (12 U.S.C. 1841).
    (d) Banking entity. (1) Except as provided in paragraph (d)(2) of
this section, banking entity means:
    (i) Any insured depository institution;
    (ii) Any company that controls an insured depository institution;
    (iii) Any company that is treated as a bank holding company for
purposes of section 8 of the International Banking Act of 1978 (12
U.S.C. 3106); and
    (iv) Any affiliate or subsidiary of any entity described in
paragraphs (d)(1)(i), (ii), or (iii) of this section.
    (2) Banking entity does not include:
    (i) A covered fund that is not itself a banking entity under
paragraphs (d)(1)(i), (ii), or (iii) of this section;
    (ii) A portfolio company held under the authority contained in
section

4(k)(4)(H) or (I) of the BHC Act (12 U.S.C. 1843(k)(4)(H), (I)), or any
portfolio concern, as defined under 13 CFR 107.50, that is controlled
by a small business investment company, as defined in section 103(3) of
the Small Business Investment Act of 1958 (15 U.S.C. 662), so long as
the portfolio company or portfolio concern is not itself a banking
entity under paragraphs (d)(1)(i), (ii), or (iii) of this section; or
    (iii) The FDIC acting in its corporate capacity or as conservator
or receiver under the Federal Deposit Insurance Act or Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act.
    (e) Board means the Board of Governors of the Federal Reserve
System.
    (f) CFTC means the Commodity Futures Trading Commission.
    (g) Dealer has the same meaning as in section 3(a)(5) of the
Exchange Act (15 U.S.C. 78c(a)(5)).
    (h) Depository institution has the same meaning as in section 3(c)
of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    (i) Derivative. (1) Except as provided in paragraph (i)(2) of this
section, derivative means:
    (i) Any swap, as that term is defined in section 1a(47) of the
Commodity Exchange Act (7 U.S.C. 1a(47)), or security-based swap, as
that term is defined in section 3(a)(68) of the Exchange Act (15 U.S.C.
78c(a)(68));
    (ii) Any purchase or sale of a commodity, that is not an excluded
commodity, for deferred shipment or delivery that is intended to be
physically settled;
    (iii) Any foreign exchange forward (as that term is defined in
section 1a(24) of the Commodity Exchange Act (7 U.S.C. 1a(24)) or
foreign exchange swap (as that term is defined in section 1a(25) of the
Commodity Exchange Act (7 U.S.C. 1a(25));
    (iv) Any agreement, contract, or transaction in foreign currency
described in section 2(c)(2)(C)(i) of the Commodity Exchange Act (7
U.S.C. 2(c)(2)(C)(i));
    (v) Any agreement, contract, or transaction in a commodity other
than foreign currency described in section 2(c)(2)(D)(i) of the
Commodity Exchange Act (7 U.S.C. 2(c)(2)(D)(i)); and
    (vi) Any transaction authorized under section 19 of the Commodity
Exchange Act (7 U.S.C. 23(a) or (b));
    (2) A derivative does not include:
    (i) Any consumer, commercial, or other agreement, contract, or
transaction that the CFTC and SEC have further defined by joint
regulation, interpretation, guidance, or other action as not within the
definition of swap, as that term is defined in section 1a(47) of the
Commodity Exchange Act (7 U.S.C. 1a(47)), or security-based swap, as
that term is defined in section 3(a)(68) of the Exchange Act (15 U.S.C.
78c(a)(68)); or
    (ii) Any identified banking product, as defined in section 402(b)
of the Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 27(b)),
that is subject to section 403(a) of that Act (7 U.S.C. 27a(a)).
    (j) Employee includes a member of the immediate family of the
employee.
    (k) Exchange Act means the Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.).
    (l) Excluded commodity has the same meaning as in section 1a(19) of
the Commodity Exchange Act (7 U.S.C. 1a(19)).
    (m) FDIC means the Federal Deposit Insurance Corporation.
    (n) Federal banking agencies means the Board, the Office of the
Comptroller of the Currency, and the FDIC.
    (o) Foreign banking organization has the same meaning as in section
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)), but does not
include a foreign bank, as defined in section 1(b)(7) of the
International Banking Act of 1978 (12 U.S.C. 3101(7)), that is
organized under the laws of the Commonwealth of Puerto Rico, Guam,
American Samoa, the United States Virgin Islands, or the Commonwealth
of the Northern Mariana Islands.
    (p) Foreign insurance regulator means the insurance commissioner,
or a similar official or agency, of any country other than the United
States that is engaged in the supervision of insurance companies under
foreign insurance law.
    (q) General account means all of the assets of an insurance company
except those allocated to one or more separate accounts.
    (r) Insurance company means a company that is organized as an
insurance company, primarily and predominantly engaged in writing
insurance or reinsuring risks underwritten by insurance companies,
subject to supervision as such by a state insurance regulator or a
foreign insurance regulator, and not operated for the purpose of
evading the provisions of section 13 of the BHC Act (12 U.S.C. 1851).
    (s) Insured depository institution has the same meaning as in
section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)),
but does not include an insured depository institution that is
described in section 2(c)(2)(D) of the BHC Act (12 U.S.C.
1841(c)(2)(D)).
    (t) Limited trading assets and liabilities means, with respect to a
banking entity, that:
    (1) The banking entity has, together with its affiliates and
subsidiaries on a worldwide consolidated basis, trading assets and
liabilities (excluding trading assets and liabilities involving
obligations of or guaranteed by the United States or any agency of the
United States) the average gross sum of which over the previous
consecutive four quarters, as measured as of the last day of each of
the four previous calendar quarters, is less than $1,000,000,000; and
    (2) The Board has not determined pursuant to Sec.  248.20(g) or (h)
of this part that the banking entity should not be treated as having
limited trading assets and liabilities.
    (u) Loan means any loan, lease, extension of credit, or secured or
unsecured receivable that is not a security or derivative.
    (v) Moderate trading assets and liabilities means, with respect to
a banking entity, that the banking entity does not have significant
trading assets and liabilities or limited trading assets and
liabilities.
    (w) Primary financial regulatory agency has the same meaning as in
section 2(12) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (12 U.S.C. 5301(12)).
    (x) Purchase includes any contract to buy, purchase, or otherwise
acquire. For security futures products, purchase includes any contract,
agreement, or transaction for future delivery. With respect to a
commodity future, purchase includes any contract, agreement, or
transaction for future delivery. With respect to a derivative, purchase
includes the execution, termination (prior to its scheduled maturity
date), assignment, exchange, or similar transfer or conveyance of, or
extinguishing of rights or obligations under, a derivative, as the
context may require.
    (y) Qualifying foreign banking organization means a foreign banking
organization that qualifies as such under section 211.23(a), (c) or (e)
of the Board's Regulation K (12 CFR 211.23(a), (c), or (e)).
    (z) SEC means the Securities and Exchange Commission.
    (aa) Sale and sell each include any contract to sell or otherwise
dispose of. For security futures products, such terms include any
contract, agreement, or transaction for future delivery. With respect
to a commodity future, such terms include any contract, agreement, or
transaction for future delivery. With respect to a derivative, such
terms include the execution, termination (prior to its scheduled
maturity date), assignment, exchange, or similar

transfer or conveyance of, or extinguishing of rights or obligations
under, a derivative, as the context may require.
    (bb) Security has the meaning specified in section 3(a)(10) of the
Exchange Act (15 U.S.C. 78c(a)(10)).
    (cc) Security-based swap dealer has the same meaning as in section
3(a)(71) of the Exchange Act (15 U.S.C. 78c(a)(71)).
    (dd) Security future has the meaning specified in section 3(a)(55)
of the Exchange Act (15 U.S.C. 78c(a)(55)).
    (ee) Separate account means an account established and maintained
by an insurance company in connection with one or more insurance
contracts to hold assets that are legally segregated from the insurance
company's other assets, under which income, gains, and losses, whether
or not realized, from assets allocated to such account, are, in
accordance with the applicable contract, credited to or charged against
such account without regard to other income, gains, or losses of the
insurance company.
    (ff) Significant trading assets and liabilities.
    (1) Significant trading assets and liabilities means, with respect
to a banking entity, that:
    (i) The banking entity has, together with its affiliates and
subsidiaries, trading assets and liabilities the average gross sum of
which over the previous consecutive four quarters, as measured as of
the last day of each of the four previous calendar quarters, equals or
exceeds $10,000,000,000; or
    (ii) The Board has determined pursuant to Sec.  248.20(h) of this
part that the banking entity should be treated as having significant
trading assets and liabilities.
    (2) With respect to a banking entity other than a banking entity
described in paragraph (3), trading assets and liabilities for purposes
of this paragraph (ff) means trading assets and liabilities (excluding
trading assets and liabilities involving obligations of or guaranteed
by the United States or any agency of the United States) on a worldwide
consolidated basis.
    (3)(i) With respect to a banking entity that is a foreign banking
organization or a subsidiary of a foreign banking organization, trading
assets and liabilities for purposes of this paragraph (ff) means the
trading assets and liabilities (excluding trading assets and
liabilities involving obligations of or guaranteed by the United States
or any agency of the United States) of the combined U.S. operations of
the top-tier foreign banking organization (including all subsidiaries,
affiliates, branches, and agencies of the foreign banking organization
operating, located, or organized in the United States).
    (ii) For purposes of paragraph (ff)(3)(i) of this section, a U.S.
branch, agency, or subsidiary of a banking entity is located in the
United States; however, the foreign bank that operates or controls that
branch, agency, or subsidiary is not considered to be located in the
United States solely by virtue of operating or controlling the U.S.
branch, agency, or subsidiary.
    (gg) State means any State, the District of Columbia, the
Commonwealth of Puerto Rico, Guam, American Samoa, the United States
Virgin Islands, and the Commonwealth of the Northern Mariana Islands.
    (hh) Subsidiary has the same meaning as in section 2(d) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(d)).
    (ii) State insurance regulator means the insurance commissioner, or
a similar official or agency, of a State that is engaged in the
supervision of insurance companies under State insurance law.
    (jj) Swap dealer has the same meaning as in section 1(a)(49) of the
Commodity Exchange Act (7 U.S.C. 1a(49)).

Subpart B--Proprietary Trading

0
16. Amend Sec.  248.3 by:
0
a. Revising paragraph (b);
0
b. Redesignating paragraphs (c) through (e) as paragraphs (d) through
(f);
0
c. Adding a new paragraph (c);
0
d. Revising paragraph (e)(3);
0
e. Adding paragraph (e)(10);
0
f. Redesignating paragraphs (f)(5) through (f)(13) as paragraphs (f)(6)
through (f)(14);
0
g. Adding a new paragraph (f)(5); and
0
h. Adding a new paragraph (g).
    The revisions and additions read as follows:

Sec.  248.3   Prohibition on proprietary trading.

* * * * *
    (b) Definition of trading account. Trading account means any
account that is used by a banking entity to:
    (1)(i) Purchase or sell one or more financial instruments that are
both market risk capital rule covered positions and trading positions
(or hedges of other market risk capital rule covered positions), if the
banking entity, or any affiliate of the banking entity, is an insured
depository institution, bank holding company, or savings and loan
holding company, and calculates risk-based capital ratios under the
market risk capital rule; or
    (ii) With respect to a banking entity that is not, and is not
controlled directly or indirectly by a banking entity that is, located
in or organized under the laws of the United States or any State,
purchase or sell one or more financial instruments that are subject to
capital requirements under a market risk framework established by the
home-country supervisor that is consistent with the market risk
framework published by the Basel Committee on Banking Supervision, as
amended from time to time.
    (2) Purchase or sell one or more financial instruments for any
purpose, if the banking entity:
    (i) Is licensed or registered, or is required to be licensed or
registered, to engage in the business of a dealer, swap dealer, or
security-based swap dealer, to the extent the instrument is purchased
or sold in connection with the activities that require the banking
entity to be licensed or registered as such; or
    (ii) Is engaged in the business of a dealer, swap dealer, or
security-based swap dealer outside of the United States, to the extent
the instrument is purchased or sold in connection with the activities
of such business; or
    (3) Purchase or sell one or more financial instruments, with
respect to a financial instrument that is recorded at fair value on a
recurring basis under applicable accounting standards.
    (c) Presumption of compliance. (1)(i) Each trading desk that does
not purchase or sell financial instruments for a trading account
defined in paragraphs (b)(1) or (b)(2) of this section may calculate
the net gain or net loss on the trading desk's portfolio of financial
instruments each business day, reflecting realized and unrealized gains
and losses since the previous business day, based on the banking
entity's fair value for such financial instruments.
    (ii) If the sum of the absolute values of the daily net gain and
loss figures determined in accordance with paragraph (c)(1)(i) of this
section for the preceding 90-calendar-day period does not exceed $25
million, the activities of the trading desk shall be presumed to be in
compliance with the prohibition in paragraph (a) of this section.
    (2) The Board may rebut the presumption of compliance in paragraph
(c)(1)(ii) of this section by providing written notice to the banking
entity that the Board has determined that one or more of the banking
entity's activities violates the prohibitions under subpart B.
    (3) If a trading desk operating pursuant to paragraph (c)(1)(ii) of
this section exceeds the $25 million threshold in that paragraph at any
point, the banking entity shall, in accordance

with any policies and procedures adopted by the Board:
    (i) Promptly notify the Board;
    (ii) Demonstrate that the trading desk's purchases and sales of
financial instruments comply with subpart B; and
    (iii) Demonstrate, with respect to the trading desk, how the
banking entity will maintain compliance with subpart B on an ongoing
basis.
* * * * *
    (e) * * *
    (3) Any purchase or sale of a security, foreign exchange forward
(as that term is defined in section 1a(24) of the Commodity Exchange
Act (7 U.S.C. 1a(24)), foreign exchange swap (as that term is defined
in section 1a(25) of the Commodity Exchange Act (7 U.S.C. 1a(25)), or
physically-settled cross-currency swap, by a banking entity for the
purpose of liquidity management in accordance with a documented
liquidity management plan of the banking entity that, with respect to
such financial instruments:
    (i) Specifically contemplates and authorizes the particular
financial instruments to be used for liquidity management purposes, the
amount, types, and risks of these financial instruments that are
consistent with liquidity management, and the liquidity circumstances
in which the particular financial instruments may or must be used;
    (ii) Requires that any purchase or sale of financial instruments
contemplated and authorized by the plan be principally for the purpose
of managing the liquidity of the banking entity, and not for the
purpose of short-term resale, benefitting from actual or expected
short-term price movements, realizing short-term arbitrage profits, or
hedging a position taken for such short-term purposes;
    (iii) Requires that any financial instruments purchased or sold for
liquidity management purposes be highly liquid and limited to financial
instruments the market, credit, and other risks of which the banking
entity does not reasonably expect to give rise to appreciable profits
or losses as a result of short-term price movements;
    (iv) Limits any financial instruments purchased or sold for
liquidity management purposes, together with any other instruments
purchased or sold for such purposes, to an amount that is consistent
with the banking entity's near-term funding needs, including deviations
from normal operations of the banking entity or any affiliate thereof,
as estimated and documented pursuant to methods specified in the plan;
    (v) Includes written policies and procedures, internal controls,
analysis, and independent testing to ensure that the purchase and sale
of financial instruments that are not permitted under Sec. Sec.
248.6(a) or (b) of this subpart are for the purpose of liquidity
management and in accordance with the liquidity management plan
described in paragraph (e)(3) of this section; and
    (vi) Is consistent with the Board's supervisory requirements,
guidance, and expectations regarding liquidity management;
* * * * *
    (10) Any purchase (or sale) of one or more financial instruments
that was made in error by a banking entity in the course of conducting
a permitted or excluded activity or is a subsequent transaction to
correct such an error, and the erroneously purchased (or sold)
financial instrument is promptly transferred to a separately-managed
trade error account for disposition.
    (f) * * *
    (5) Cross-currency swap means a swap in which one party exchanges
with another party principal and interest rate payments in one currency
for principal and interest rate payments in another currency, and the
exchange of principal occurs on the date the swap is entered into, with
a reversal of the exchange of principal at a later date that is agreed
upon when the swap is entered into.
* * * * *
    (g) Reservation of Authority: (1) The Board may determine, on a
case-by-case basis, that a purchase or sale of one or more financial
instruments by a banking entity either is or is not for the trading
account as defined at 12 U.S.C. 1851(h)(6).
    (2) Notice and Response Procedures.
    (i) Notice. When the Board determines that the purchase or sale of
one or more financial instruments is for the trading account under
paragraph (g)(1) of this section, the Board will notify the banking
entity in writing of the determination and provide an explanation of
the determination.
    (ii) Response.
    (A) The banking entity may respond to any or all items in the
notice. The response should include any matters that the banking entity
would have the Boardconsider in deciding whether the purchase or sale
is for the trading account. The response must be in writing and
delivered to the designated Board official within 30 days after the
date on which the banking entity received the notice. The Board may
shorten the time period when, in the opinion of the Board, the
activities or condition of the banking entity so requires, provided
that the banking entity is informed promptly of the new time period, or
with the consent of the banking entity. In its discretion, the Board
may extend the time period for good cause.
    (B) Failure to respond within 30 days or such other time period as
may be specified by the Board shall constitute a waiver of any
objections to the Board's determination.
    (iii) After the close of banking entity's response period, the
Board will decide, based on a review of the banking entity's response
and other information concerning the banking entity, whether to
maintain the Board's determination that the purchase or sale of one or
more financial instruments is for the trading account. The banking
entity will be notified of the decision in writing. The notice will
include an explanation of the decision.
0
17. Section 248.4 is amended by:
0
a. Revising paragraph (a)(2);
0
b. Adding paragraph (a)(8);
0
c. Revising paragraph (b)(2);
0
d. Revising the introductory language of paragraph (b)(3)(i);
0
e. In paragraph (b)(5) revising the references to ``inventory'' to read
``positions''; and
0
f. Adding a new paragraph (b)(6).
    The revisions and additions read as follows:

Sec.  248.4   Permitted underwriting and market making-related
activities.

    (a) * * *
    (2) Requirements. The underwriting activities of a banking entity
are permitted under paragraph (a)(1) of this section only if:
    (i) The banking entity is acting as an underwriter for a
distribution of securities and the trading desk's underwriting position
is related to such distribution;
    (ii)(A) The amount and type of the securities in the trading desk's
underwriting position are designed not to exceed the reasonably
expected near term demands of clients, customers, or counterparties,
taking into account the liquidity, maturity, and depth of the market
for the relevant type of security, and (B) reasonable efforts are made
to sell or otherwise reduce the underwriting position within a
reasonable period, taking into account the liquidity, maturity, and
depth of the market for the relevant type of security;
    (iii) In the case of a banking entity with significant trading
assets and liabilities, the banking entity has established and
implements, maintains, and enforces an internal compliance program
required by subpart D of this part that is reasonably designed to

ensure the banking entity's compliance with the requirements of
paragraph (a) of this section, including reasonably designed written
policies and procedures, internal controls, analysis, and independent
testing identifying and addressing:
    (A) The products, instruments or exposures each trading desk may
purchase, sell, or manage as part of its underwriting activities;
    (B) Limits for each trading desk, in accordance with paragraph
(a)(8)(i) of this section;
    (C) Internal controls and ongoing monitoring and analysis of each
trading desk's compliance with its limits; and
    (D) Authorization procedures, including escalation procedures that
require review and approval of any trade that would exceed a trading
desk's limit(s), demonstrable analysis of the basis for any temporary
or permanent increase to a trading desk's limit(s), and independent
review of such demonstrable analysis and approval;
    (iv) The compensation arrangements of persons performing the
activities described in this paragraph (a) are designed not to reward
or incentivize prohibited proprietary trading; and
    (v) The banking entity is licensed or registered to engage in the
activity described in this paragraph (a) in accordance with applicable
law.
* * * * *
    (8) Rebuttable presumption of compliance.--(i) Risk limits. (A) A
banking entity shall be presumed to meet the requirements of paragraph
(a)(2)(ii)(A) of this section with respect to the purchase or sale of a
financial instrument if the banking entity has established and
implements, maintains, and enforces the limits described in paragraph
(a)(8)(i)(B) and does not exceed such limits.
    (B) The presumption described in paragraph (8)(i)(A) of this
section shall be available with respect to limits for each trading desk
that are designed not to exceed the reasonably expected near term
demands of clients, customers, or counterparties, based on the nature
and amount of the trading desk's underwriting activities, on the:
    (1) Amount, types, and risk of its underwriting position;
    (2) Level of exposures to relevant risk factors arising from its
underwriting position; and
    (3) Period of time a security may be held.
    (ii) Supervisory review and oversight. The limits described in
paragraph (a)(8)(i) of this section shall be subject to supervisory
review and oversight by the Board on an ongoing basis. Any review of
such limits will include assessment of whether the limits are designed
not to exceed the reasonably expected near term demands of clients,
customers, or counterparties.
    (iii) Reporting. With respect to any limit identified pursuant to
paragraph (a)(8)(i) of this section, a banking entity shall promptly
report to the Board (A) to the extent that any limit is exceeded and
(B) any temporary or permanent increase to any limit(s), in each case
in the form and manner as directed by the Board.
    (iv) Rebutting the presumption. The presumption in paragraph
(a)(8)(i) of this section may be rebutted by the Board if the Board
determines, based on all relevant facts and circumstances, that a
trading desk is engaging in activity that is not based on the
reasonably expected near term demands of clients, customers, or
counterparties. The Board will provide notice of any such determination
to the banking entity in writing.
    (b) * * *
    (2) Requirements. The market making-related activities of a banking
entity are permitted under paragraph (b)(1) of this section only if:
    (i) The trading desk that establishes and manages the financial
exposure routinely stands ready to purchase and sell one or more types
of financial instruments related to its financial exposure and is
willing and available to quote, purchase and sell, or otherwise enter
into long and short positions in those types of financial instruments
for its own account, in commercially reasonable amounts and throughout
market cycles on a basis appropriate for the liquidity, maturity, and
depth of the market for the relevant types of financial instruments;
    (ii) The trading desk's market-making related activities are
designed not to exceed, on an ongoing basis, the reasonably expected
near term demands of clients, customers, or counterparties, based on
the liquidity, maturity, and depth of the market for the relevant types
of financial instrument(s).
    (iii) In the case of a banking entity with significant trading
assets and liabilities, the banking entity has established and
implements, maintains, and enforces an internal compliance program
required by subpart D of this part that is reasonably designed to
ensure the banking entity's compliance with the requirements of
paragraph (b) of this section, including reasonably designed written
policies and procedures, internal controls, analysis and independent
testing identifying and addressing:
    (A) The financial instruments each trading desk stands ready to
purchase and sell in accordance with paragraph (b)(2)(i) of this
section;
    (B) The actions the trading desk will take to demonstrably reduce
or otherwise significantly mitigate promptly the risks of its financial
exposure consistent with the limits required under paragraph
(b)(2)(iii)(C) of this section; the products, instruments, and
exposures each trading desk may use for risk management purposes; the
techniques and strategies each trading desk may use to manage the risks
of its market making-related activities and positions; and the process,
strategies, and personnel responsible for ensuring that the actions
taken by the trading desk to mitigate these risks are and continue to
be effective;
    (C) Limits for each trading desk, in accordance with paragraph
(b)(6)(i) of this section;
    (D) Internal controls and ongoing monitoring and analysis of each
trading desk's compliance with its limits; and
    (E) Authorization procedures, including escalation procedures that
require review and approval of any trade that would exceed a trading
desk's limit(s), demonstrable analysis that the basis for any temporary
or permanent increase to a trading desk's limit(s) is consistent with
the requirements of this paragraph (b), and independent review of such
demonstrable analysis and approval;
    (iv) In the case of a banking entity with significant trading
assets and liabilities, to the extent that any limit identified
pursuant to paragraph (b)(2)(iii)(C) of this section is exceeded, the
trading desk takes action to bring the trading desk into compliance
with the limits as promptly as possible after the limit is exceeded;
    (v) The compensation arrangements of persons performing the
activities described in this paragraph (b) are designed not to reward
or incentivize prohibited proprietary trading; and
    (vi) The banking entity is licensed or registered to engage in
activity described in this paragraph (b) in accordance with applicable
law.
    (3) * * *
    (i) A trading desk or other organizational unit of another banking
entity is not a client, customer, or counterparty of the trading desk
if that other entity has trading assets and liabilities of $50 billion
or more as measured in accordance with the methodology described in
definition of ``significant trading assets and liabilities'' contained
in Sec.  248.2 of this part, unless:
* * * * *

    (6) Rebuttable presumption of compliance.
    (i) Risk limits.
    (A) A banking entity shall be presumed to meet the requirements of
paragraph (b)(2)(ii) of this section with respect to the purchase or
sale of a financial instrument if the banking entity has established
and implements, maintains, and enforces the limits described in
paragraph (b)(6)(i)(B) and does not exceed such limits.
    (B) The presumption described in paragraph (6)(i)(A) of this
section shall be available with respect to limits for each trading desk
that are designed not to exceed the reasonably expected near term
demands of clients, customers, or counterparties, based on the nature
and amount of the trading desk's market making-related activities, on
the:
    (1) Amount, types, and risks of its market-maker positions;
    (2) Amount, types, and risks of the products, instruments, and
exposures the trading desk may use for risk management purposes;
    (3) Level of exposures to relevant risk factors arising from its
financial exposure; and
    (4) Period of time a financial instrument may be held.
    (ii) Supervisory review and oversight. The limits described in
paragraph (b)(6)(i) of this section shall be subject to supervisory
review and oversight by the Board on an ongoing basis. Any review of
such limits will include assessment of whether the limits are designed
not to exceed the reasonably expected near term demands of clients,
customers, or counterparties.
    (iii) Reporting. With respect to any limit identified pursuant to
paragraph (b)(6)(i) of this section, a banking entity shall promptly
report to the Board (A) to the extent that any limit is exceeded and
(B) any temporary or permanent increase to any limit(s), in each case
in the form and manner as directed by the Board.
    (iv) Rebutting the presumption. The presumption in paragraph
(b)(6)(i) of this section may be rebutted by the Board if the Board
determines, based on all relevant facts and circumstances, that a
trading desk is engaging in activity that is not based on the
reasonably expected near term demands of clients, customers, or
counterparties. The Board will provide notice of any such determination
to the banking entity in writing.
0
18. Amend Sec.  248.5 by revising paragraph (b), the introductory text
of paragraph (c)(1); and adding paragraph (c)(4) to read as follows:

Sec.  248.5   Permitted risk-mitigating hedging activities.

* * * * *
    (b) Requirements.
    (1) The risk-mitigating hedging activities of a banking entity that
has significant trading assets and liabilities are permitted under
paragraph (a) of this section only if:
    (i) The banking entity has established and implements, maintains
and enforces an internal compliance program required by subpart D of
this part that is reasonably designed to ensure the banking entity's
compliance with the requirements of this section, including:
    (A) Reasonably designed written policies and procedures regarding
the positions, techniques and strategies that may be used for hedging,
including documentation indicating what positions, contracts or other
holdings a particular trading desk may use in its risk-mitigating
hedging activities, as well as position and aging limits with respect
to such positions, contracts or other holdings;
    (B) Internal controls and ongoing monitoring, management, and
authorization procedures, including relevant escalation procedures; and
    (C) The conduct of analysis and independent testing designed to
ensure that the positions, techniques and strategies that may be used
for hedging may reasonably be expected to reduce or otherwise
significantly mitigate the specific, identifiable risk(s) being hedged;
    (ii) The risk-mitigating hedging activity:
    (A) Is conducted in accordance with the written policies,
procedures, and internal controls required under this section;
    (B) At the inception of the hedging activity, including, without
limitation, any adjustments to the hedging activity, is designed to
reduce or otherwise significantly mitigate one or more specific,
identifiable risks, including market risk, counterparty or other credit
risk, currency or foreign exchange risk, interest rate risk, commodity
price risk, basis risk, or similar risks, arising in connection with
and related to identified positions, contracts, or other holdings of
the banking entity, based upon the facts and circumstances of the
identified underlying and hedging positions, contracts or other
holdings and the risks and liquidity thereof;
    (C) Does not give rise, at the inception of the hedge, to any
significant new or additional risk that is not itself hedged
contemporaneously in accordance with this section;
    (D) Is subject to continuing review, monitoring and management by
the banking entity that:
    (1) Is consistent with the written hedging policies and procedures
required under paragraph (b)(1)(i) of this section;
    (2) Is designed to reduce or otherwise significantly mitigate the
specific, identifiable risks that develop over time from the risk-
mitigating hedging activities undertaken under this section and the
underlying positions, contracts, and other holdings of the banking
entity, based upon the facts and circumstances of the underlying and
hedging positions, contracts and other holdings of the banking entity
and the risks and liquidity thereof; and
    (3) Requires ongoing recalibration of the hedging activity by the
banking entity to ensure that the hedging activity satisfies the
requirements set out in paragraph (b)(1)(ii) of this section and is not
prohibited proprietary trading; and
    (iii) The compensation arrangements of persons performing risk-
mitigating hedging activities are designed not to reward or incentivize
prohibited proprietary trading.
    (2) The risk-mitigating hedging activities of a banking entity that
does not have significant trading assets and liabilities are permitted
under paragraph (a) of this section only if the risk-mitigating hedging
activity:
    (i) At the inception of the hedging activity, including, without
limitation, any adjustments to the hedging activity, is designed to
reduce or otherwise significantly mitigate one or more specific,
identifiable risks, including market risk, counterparty or other credit
risk, currency or foreign exchange risk, interest rate risk, commodity
price risk, basis risk, or similar risks, arising in connection with
and related to identified positions, contracts, or other holdings of
the banking entity, based upon the facts and circumstances of the
identified underlying and hedging positions, contracts or other
holdings and the risks and liquidity thereof; and
    (ii) Is subject, as appropriate, to ongoing recalibration by the
banking entity to ensure that the hedging activity satisfies the
requirements set out in paragraph (b)(2) of this section and is not
prohibited proprietary trading.
    (c) * * * (1) A banking entity that has significant trading assets
and liabilities must comply with the requirements of paragraphs (c)(2)
and (3) of this section, unless the requirements of paragraph (c)(4) of
this section are met, with respect to any purchase or sale of financial
instruments made in reliance

on this section for risk-mitigating hedging purposes that is:
* * * * *
    (4) The requirements of paragraphs (c)(2) and (3) of this section
do not apply to the purchase or sale of a financial instrument
described in paragraph (c)(1) of this section if:
    (i) The financial instrument purchased or sold is identified on a
written list of pre-approved financial instruments that are commonly
used by the trading desk for the specific type of hedging activity for
which the financial instrument is being purchased or sold; and
    (ii) At the time the financial instrument is purchased or sold, the
hedging activity (including the purchase or sale of the financial
instrument) complies with written, pre-approved hedging limits for the
trading desk purchasing or selling the financial instrument for hedging
activities undertaken for one or more other trading desks. The hedging
limits shall be appropriate for the:
    (A) Size, types, and risks of the hedging activities commonly
undertaken by the trading desk;
    (B) Financial instruments purchased and sold for hedging activities
by the trading desk; and
    (C) Levels and duration of the risk exposures being hedged.
0
19. Amend Sec.  248.6 by revising paragraph (e)(3) and removing
paragraph (e)(6) to read as follows:

Sec.  248.6   Other permitted proprietary trading activities.

* * * * *
    (e) * * *
    (3) A purchase or sale by a banking entity is permitted for
purposes of this paragraph (e) if:
    (i) The banking entity engaging as principal in the purchase or
sale (including relevant personnel) is not located in the United States
or organized under the laws of the United States or of any State;
    (ii) The banking entity (including relevant personnel) that makes
the decision to purchase or sell as principal is not located in the
United States or organized under the laws of the United States or of
any State; and
    (iii) The purchase or sale, including any transaction arising from
risk-mitigating hedging related to the instruments purchased or sold,
is not accounted for as principal directly or on a consolidated basis
by any branch or affiliate that is located in the United States or
organized under the laws of the United States or of any State.
* * * * *

Subpart C--Covered Funds Activities and Investments

Sec.  248.10  [Amended]

0
20. Section 248.10 is amended by:
0
a. In paragraph (c)(8)(i)(A) revising the reference to ``Sec.
248.2(s)'' to read ``Sec.  248.2(u)'';
0
b. Removing paragraph (d)(1);
0
c. Redesignating paragraphs (d)(2) through (d)(10) as paragraphs (d)(1)
through (d)(9);
0
d. In paragraph (d)(5)(i)(G) revising the reference to ``(d)(6)(i)(A)''
to read ``(d)(5)(i)(A)''; and
0
e. In paragraph (d)(9) revising the reference to ``(d)(9)'' to read
``(d)(8)'' and the reference to ``(d)(10)(i)(A)'' to read
``(d)(9)(i)(A)'' and the reference to ``(d)(10)(i)'' to read
``(d)(9)(i)''
0
21. Section 248.11 is amended by revising paragraph (c) as follows:

Sec.  248.11  Permitted organizing and offering, underwriting, and
market making with respect to a covered fund.

* * * * *
    (c) Underwriting and market making in ownership interests of a
covered fund. The prohibition contained in Sec.  248.10(a) of this
subpart does not apply to a banking entity's underwriting activities or
market making-related activities involving a covered fund so long as:
    (1) Those activities are conducted in accordance with the
requirements of Sec.  248.4(a) or Sec.  248.4(b) of subpart B,
respectively; and
    (2) With respect to any banking entity (or any affiliate thereof)
that: Acts as a sponsor, investment adviser or commodity trading
advisor to a particular covered fund or otherwise acquires and retains
an ownership interest in such covered fund in reliance on paragraph (a)
of this section; or acquires and retains an ownership interest in such
covered fund and is either a securitizer, as that term is used in
section 15G(a)(3) of the Exchange Act (15 U.S.C. 78o-11(a)(3)), or is
acquiring and retaining an ownership interest in such covered fund in
compliance with section 15G of that Act (15 U.S.C. 78o-11) and the
implementing regulations issued thereunder each as permitted by
paragraph (b) of this section, then in each such case any ownership
interests acquired or retained by the banking entity and its affiliates
in connection with underwriting and market making related activities
for that particular covered fund are included in the calculation of
ownership interests permitted to be held by the banking entity and its
affiliates under the limitations of Sec.  248.12(a)(2)(ii); Sec.
248.12(a)(2)(iii), and Sec.  248.12(d) of this subpart.

Sec.  248.12  (Amended)

0
22. Section 248.12 is amended by
0
a. In paragraphs (c)(1) and (d) removing the references to ``Sec.
248.10(d)(6)(ii)'' and replacing with ``Sec.  248.10(d)(5)(ii)'';
0
b. Removing paragraph (e)(2)(vii); and
0
c. Redesignating the second instance of paragraph (e)(2)(vi) as
paragraph (e)(2)(vii).
0
23. Section 248.13 is amended by revising paragraphs (a) and (b)(3) and
removing paragraph (b)(4)(iv) to read as follows:

Sec.  248.13   Other permitted covered fund activities and investments.

    (a) Permitted risk-mitigating hedging activities. (1) The
prohibition contained in Sec.  248.10(a) of this subpart does not apply
with respect to an ownership interest in a covered fund acquired or
retained by a banking entity that is designed to reduce or otherwise
significantly mitigate the specific, identifiable risks to the banking
entity in connection with:
    (i) A compensation arrangement with an employee of the banking
entity or an affiliate thereof that directly provides investment
advisory, commodity trading advisory or other services to the covered
fund; or
    (ii) A position taken by the banking entity when acting as
intermediary on behalf of a customer that is not itself a banking
entity to facilitate the exposure by the customer to the profits and
losses of the covered fund.
    (2) Requirements. The risk-mitigating hedging activities of a
banking entity are permitted under this paragraph (a) only if:
    (i) The banking entity has established and implements, maintains
and enforces an internal compliance program in accordance with subpart
D of this part that is reasonably designed to ensure the banking
entity's compliance with the requirements of this section, including:
    (A) Reasonably designed written policies and procedures; and
    (B) Internal controls and ongoing monitoring, management, and
authorization procedures, including relevant escalation procedures; and
    (ii) The acquisition or retention of the ownership interest:
    (A) Is made in accordance with the written policies, procedures,
and internal controls required under this section;
    (B) At the inception of the hedge, is designed to reduce or
otherwise significantly mitigate one or more specific, identifiable
risks arising (1) out of a transaction conducted solely to accommodate
a specific customer request with respect to the covered fund

or (2) in connection with the compensation arrangement with the
employee that directly provides investment advisory, commodity trading
advisory, or other services to the covered fund;
    (C) Does not give rise, at the inception of the hedge, to any
significant new or additional risk that is not itself hedged
contemporaneously in accordance with this section; and
    (D) Is subject to continuing review, monitoring and management by
the banking entity.
    (iii) With respect to risk-mitigating hedging activity conducted
pursuant to paragraph (a)(1)(i), the compensation arrangement relates
solely to the covered fund in which the banking entity or any affiliate
has acquired an ownership interest pursuant to paragraph (a)(1)(i) and
such compensation arrangement provides that any losses incurred by the
banking entity on such ownership interest will be offset by
corresponding decreases in amounts payable under such compensation
arrangement.
* * * * *
    (b) * * *
    (3) An ownership interest in a covered fund is not offered for sale
or sold to a resident of the United States for purposes of paragraph
(b)(1)(iii) of this section only if it is not sold and has not been
sold pursuant to an offering that targets residents of the United
States in which the banking entity or any affiliate of the banking
entity participates. If the banking entity or an affiliate sponsors or
serves, directly or indirectly, as the investment manager, investment
adviser, commodity pool operator or commodity trading advisor to a
covered fund, then the banking entity or affiliate will be deemed for
purposes of this paragraph (b)(3) to participate in any offer or sale
by the covered fund of ownership interests in the covered fund.
* * * * *
0
24. Section 248.14 is amended by revising paragraph (a)(2)(ii)(B) as
follows:

Sec.  248.14  Limitations on relationships with a covered fund.

* * * * *
    (a) * * *
    (2) * * *
    (ii) * * *
    (B) The chief executive officer (or equivalent officer) of the
banking entity certifies in writing annually no later than March 31 to
the Board (with a duty to update the certification if the information
in the certification materially changes) that the banking entity does
not, directly or indirectly, guarantee, assume, or otherwise insure the
obligations or performance of the covered fund or of any covered fund
in which such covered fund invests; and
* * * * *

Subpart D--Compliance Program Requirement; Violations

0
25. Section 248.20 is amended by:
0
a. Revising paragraph (a);
0
b. Revising the introductory language of paragraph (b);
0
c. Revising paragraph (c);
0
d. Revising paragraph (d);
0
e. Revising the introductory language of paragraph (e);
0
f. Revising paragraph (f)(2); and
0
g. Adding new paragraphs (g) and (h).
    The revisions are as follows:

Sec.  248.20  Program for compliance; reporting.

    (a) Program requirement. Each banking entity (other than a banking
entity with limited trading assets and liabilities) shall develop and
provide for the continued administration of a compliance program
reasonably designed to ensure and monitor compliance with the
prohibitions and restrictions on proprietary trading and covered fund
activities and investments set forth in section 13 of the BHC Act and
this part. The terms, scope, and detail of the compliance program shall
be appropriate for the types, size, scope, and complexity of activities
and business structure of the banking entity.
    (b) Banking entities with significant trading assets and
liabilities. With respect to a banking entity with significant trading
assets and liabilities, the compliance program required by paragraph
(a) of this section, at a minimum, shall include:
* * * * *
    (c) CEO attestation. (1) The CEO of a banking entity described in
paragraph (2) must, based on a review by the CEO of the banking entity,
attest in writing to the Board, each year no later than March 31, that
the banking entity has in place processes reasonably designed to
achieve compliance with section 13 of the BHC Act and this part. In the
case of a U.S. branch or agency of a foreign banking entity, the
attestation may be provided for the entire U.S. operations of the
foreign banking entity by the senior management officer of the U.S.
operations of the foreign banking entity who is located in the United
States.
    (2) The requirements of paragraph (c)(1) of this section apply to a
banking entity if:
    (i) The banking entity does not have limited trading assets and
liabilities; or
    (ii) The Board notifies the banking entity in writing that it must
satisfy the requirements contained in paragraph (c)(1) of this section.
    (d) Reporting requirements under the Appendix to this part. (1) A
banking entity engaged in proprietary trading activity permitted under
subpart B shall comply with the reporting requirements described in the
Appendix, if:
    (i) The banking entity has significant trading assets and
liabilities; or
    (ii) The Board notifies the banking entity in writing that it must
satisfy the reporting requirements contained in the Appendix.
    (2) Frequency of reporting. Unless the Board notifies the banking
entity in writing that it must report on a different basis, a banking
entity with $50 billion or more in trading assets and liabilities (as
calculated in accordance with the methodology described in the
definition of ``significant trading assets and liabilities'' contained
in Sec.  248.2 of this part of this part) shall report the information
required by the Appendix for each calendar month within 20 days of the
end of each calendar month. Any other banking entity subject to the
Appendix shall report the information required by the Appendix for each
calendar quarter within 30 days of the end of that calendar quarter
unless the Board notifies the banking entity in writing that it must
report on a different basis.
    (e) Additional documentation for covered funds. A banking entity
with significant trading assets and liabilities shall maintain records
that include:
* * * * *
    (f) * * *
    (2) Banking entities with moderate trading assets and liabilities.
A banking entity with moderate trading assets and liabilities may
satisfy the requirements of this section by including in its existing
compliance policies and procedures appropriate references to the
requirements of section 13 of the BHC Act and this part and adjustments
as appropriate given the activities, size, scope, and complexity of the
banking entity.
    (g) Rebuttable presumption of compliance for banking entities with
limited trading assets and liabilities.
    (1) Rebuttable presumption. Except as otherwise provided in this
paragraph, a banking entity with limited trading assets and liabilities
shall be presumed to be compliant with subpart B and subpart C and
shall have no obligation to demonstrate compliance with this part on an
ongoing basis.
    (2) Rebuttal of presumption. (i) If upon examination or audit, the
Board determines that the banking entity has engaged in proprietary
trading or

covered fund activities that are otherwise prohibited under subpart B
or subpart C, the Board may require the banking entity to be treated
under this part as if it did not have limited trading assets and
liabilities.
    (ii) Notice and Response Procedures.
    (A) Notice. The Board will notify the banking entity in writing of
any determination pursuant to paragraph (g)(2)(i) of this section to
rebut the presumption described in this paragraph (g) and will provide
an explanation of the determination.
    (B) Response. (1) The banking entity may respond to any or all
items in the notice described in paragraph (g)(2)(ii)(A) of this
section. The response should include any matters that the banking
entity would have the Board consider in deciding whether the banking
entity has engaged in proprietary trading or covered fund activities
prohibited under subpart B or subpart C. The response must be in
writing and delivered to the designated Board official within 30 days
after the date on which the banking entity received the notice. The
Board may shorten the time period when, in the opinion of the Board,
the activities or condition of the banking entity so requires, provided
that the banking entity is informed promptly of the new time period, or
with the consent of the banking entity. In its discretion, the Board
may extend the time period for good cause.
    (2) Failure to respond within 30 days or such other time period as
may be specified by the Board shall constitute a waiver of any
objections to the Board's determination.
    (C) After the close of banking entity's response period, the Board
will decide, based on a review of the banking entity's response and
other information concerning the banking entity, whether to maintain
the Board's determination that banking entity has engaged in
proprietary trading or covered fund activities prohibited under subpart
B or subpart C. The banking entity will be notified of the decision in
writing. The notice will include an explanation of the decision.
    (h) Reservation of authority. Notwithstanding any other provision
of this part, the Board retains its authority to require a banking
entity without significant trading assets and liabilities to apply any
requirements of this part that would otherwise apply if the banking
entity had significant or moderate trading assets and liabilities if
the Board determines that the size or complexity of the banking
entity's trading or investment activities, or the risk of evasion of
subpart B or subpart C, does not warrant a presumption of compliance
under paragraph (g) of this section or treatment as a banking entity
with moderate trading assets and liabilities, as applicable.
0
26. Remove Appendix A and Appendix B to Part 248 and add Appendix to
Part 248--Reporting and Recordkeeping Requirements for Covered Trading
Activities to read as follows:

Appendix to Part 248--Reporting and Recordkeeping Requirements for
Covered Trading Activities

I. Purpose

    a. This appendix sets forth reporting and recordkeeping
requirements that certain banking entities must satisfy in
connection with the restrictions on proprietary trading set forth in
subpart B (``proprietary trading restrictions''). Pursuant to Sec.
248.20(d), this appendix applies to a banking entity that, together
with its affiliates and subsidiaries, has significant trading assets
and liabilities. These entities are required to (i) furnish periodic
reports to the Board regarding a variety of quantitative
measurements of their covered trading activities, which vary
depending on the scope and size of covered trading activities, and
(ii) create and maintain records documenting the preparation and
content of these reports. The requirements of this appendix must be
incorporated into the banking entity's internal compliance program
under Sec.  248.20.
    b. The purpose of this appendix is to assist banking entities
and the Board in:
    (i) Better understanding and evaluating the scope, type, and
profile of the banking entity's covered trading activities;
    (ii) Monitoring the banking entity's covered trading activities;
    (iii) Identifying covered trading activities that warrant
further review or examination by the banking entity to verify
compliance with the proprietary trading restrictions;
    (iv) Evaluating whether the covered trading activities of
trading desks engaged in market making-related activities subject to
Sec.  248.4(b) are consistent with the requirements governing
permitted market making-related activities;
    (v) Evaluating whether the covered trading activities of trading
desks that are engaged in permitted trading activity subject to
Sec. Sec.  248.4; 248.5, or 248.6(a)-(b) (i.e., underwriting and
market making-related related activity, risk-mitigating hedging, or
trading in certain government obligations) are consistent with the
requirement that such activity not result, directly or indirectly,
in a material exposure to high-risk assets or high-risk trading
strategies;
    (vi) Identifying the profile of particular covered trading
activities of the banking entity, and the individual trading desks
of the banking entity, to help establish the appropriate frequency
and scope of examination by the Board of such activities; and
    (vii) Assessing and addressing the risks associated with the
banking entity's covered trading activities.
    c. Information that must be furnished pursuant to this appendix
is not intended to serve as a dispositive tool for the
identification of permissible or impermissible activities.
    d. In addition to the quantitative measurements required in this
appendix, a banking entity may need to develop and implement other
quantitative measurements in order to effectively monitor its
covered trading activities for compliance with section 13 of the BHC
Act and this part and to have an effective compliance program, as
required by Sec.  248.20. The effectiveness of particular
quantitative measurements may differ based on the profile of the
banking entity's businesses in general and, more specifically, of
the particular trading desk, including types of instruments traded,
trading activities and strategies, and history and experience (e.g.,
whether the trading desk is an established, successful market maker
or a new entrant to a competitive market). In all cases, banking
entities must ensure that they have robust measures in place to
identify and monitor the risks taken in their trading activities, to
ensure that the activities are within risk tolerances established by
the banking entity, and to monitor and examine for compliance with
the proprietary trading restrictions in this part.
    e. On an ongoing basis, banking entities must carefully monitor,
review, and evaluate all furnished quantitative measurements, as
well as any others that they choose to utilize in order to maintain
compliance with section 13 of the BHC Act and this part. All
measurement results that indicate a heightened risk of impermissible
proprietary trading, including with respect to otherwise-permitted
activities under Sec. Sec.  248.4 through 248.6(a)-(b), or that
result in a material exposure to high-risk assets or high-risk
trading strategies, must be escalated within the banking entity for
review, further analysis, explanation to the Board, and remediation,
where appropriate. The quantitative measurements discussed in this
appendix should be helpful to banking entities in identifying and
managing the risks related to their covered trading activities.

II. Definitions

    The terms used in this appendix have the same meanings as set
forth in Sec. Sec.  248.2 and 248.3. In addition, for purposes of
this appendix, the following definitions apply:
    Applicability identifies the trading desks for which a banking
entity is required to calculate and report a particular quantitative
measurement based on the type of covered trading activity conducted
by the trading desk.
    Calculation period means the period of time for which a
particular quantitative measurement must be calculated.
    Comprehensive profit and loss means the net profit or loss of a
trading desk's material sources of trading revenue over a specific
period of time, including, for example, any increase or decrease in
the market value of a trading desk's holdings, dividend income, and
interest income and expense.
    Covered trading activity means trading conducted by a trading
desk under Sec. Sec.  248.4, 248.5, 248.6(a), or 248.6(b). A banking
entity

may include in its covered trading activity trading conducted under
Sec. Sec.  248.3(e), 248.6(c), 248.6(d), or 248.6(e).
    Measurement frequency means the frequency with which a
particular quantitative metric must be calculated and recorded.
    Trading day means a calendar day on which a trading desk is open
for trading.

III. Reporting and Recordkeeping

a. Scope of Required Reporting

    1. Quantitative measurements. Each banking entity made subject
to this appendix by Sec.  248.20 must furnish the following
quantitative measurements, as applicable, for each trading desk of
the banking entity engaged in covered trading activities and
calculate these quantitative measurements in accordance with this
appendix:
    i. Risk and Position Limits and Usage;
    ii. Risk Factor Sensitivities;
    iii. Value-at-Risk and Stressed Value-at-Risk;
    iv. Comprehensive Profit and Loss Attribution;
    v. Positions;
    vi. Transaction Volumes; and
    vii. Securities Inventory Aging.
    2. Trading desk information. Each banking entity made subject to
this appendix by Sec.  __.20 must provide certain descriptive
information, as further described in this appendix, regarding each
trading desk engaged in covered trading activities. Quantitative
measurements identifying information. Each banking entity made
subject to this appendix by Sec.  248.20 must provide certain
identifying and descriptive information, as further described in
this appendix, regarding its quantitative measurements.
    4. Narrative statement. Each banking entity made subject to this
appendix by Sec.  248.20 must provide a separate narrative
statement, as further described in this appendix.
    5. File identifying information. Each banking entity made
subject to this appendix by Sec.  248.20 must provide file
identifying information in each submission to the Board pursuant to
this appendix, including the name of the banking entity, the RSSD ID
assigned to the top-tier banking entity by the Board, and
identification of the reporting period and creation date and time.

b. Trading Desk Information

    1. Each banking entity must provide descriptive information
regarding each trading desk engaged in covered trading activities,
including:
    i. Name of the trading desk used internally by the banking
entity and a unique identification label for the trading desk;
    ii. Identification of each type of covered trading activity in
which the trading desk is engaged;
    iii. Brief description of the general strategy of the trading
desk;
    iv. A list of the types of financial instruments and other
products purchased and sold by the trading desk; an indication of
which of these are the main financial instruments or products
purchased and sold by the trading desk; and, for trading desks
engaged in market making-related activities under Sec.  248.4(b),
specification of whether each type of financial instrument is
included in market-maker positions or not included in market-maker
positions. In addition, indicate whether the trading desk is
including in its quantitative measurements products excluded from
the definition of ``financial instrument'' under Sec.  248.3(d)(2)
and, if so, identify such products;
    v. Identification by complete name of each legal entity that
serves as a booking entity for covered trading activities conducted
by the trading desk; and indication of which of the identified legal
entities are the main booking entities for covered trading
activities of the trading desk;
    vi. For each legal entity that serves as a booking entity for
covered trading activities, specification of any of the following
applicable entity types for that legal entity:
    A. National bank, Federal branch or Federal agency of a foreign
bank, Federal savings association, Federal savings bank;
    B. State nonmember bank, foreign bank having an insured branch,
State savings association;
    C. U.S.-registered broker-dealer, U.S.-registered security-based
swap dealer, U.S.-registered major security-based swap participant;
    D. Swap dealer, major swap participant, derivatives clearing
organization, futures commission merchant, commodity pool operator,
commodity trading advisor, introducing broker, floor trader, retail
foreign exchange dealer;
    E. State member bank;
    F. Bank holding company, savings and loan holding company;
    G. Foreign banking organization as defined in 12 CFR 211.21(o);
    H. Uninsured State-licensed branch or agency of a foreign bank;
or
    I. Other entity type not listed above, including a subsidiary of
a legal entity described above where the subsidiary itself is not an
entity type listed above;
    2. Indication of whether each calendar date is a trading day or
not a trading day for the trading desk; and
    3. Currency reported and daily currency conversion rate.

c. Quantitative Measurements Identifying Information

    1. Each banking entity must provide the following information
regarding the quantitative measurements:
    i. A Risk and Position Limits Information Schedule that provides
identifying and descriptive information for each limit reported
pursuant to the Risk and Position Limits and Usage quantitative
measurement, including the name of the limit, a unique
identification label for the limit, a description of the limit,
whether the limit is intraday or end-of-day, the unit of measurement
for the limit, whether the limit measures risk on a net or gross
basis, and the type of limit;
    ii. A Risk Factor Sensitivities Information Schedule that
provides identifying and descriptive information for each risk
factor sensitivity reported pursuant to the Risk Factor
Sensitivities quantitative measurement, including the name of the
sensitivity, a unique identification label for the sensitivity, a
description of the sensitivity, and the sensitivity's risk factor
change unit;
    iii. A Risk Factor Attribution Information Schedule that
provides identifying and descriptive information for each risk
factor attribution reported pursuant to the Comprehensive Profit and
Loss Attribution quantitative measurement, including the name of the
risk factor or other factor, a unique identification label for the
risk factor or other factor, a description of the risk factor or
other factor, and the risk factor or other factor's change unit;
    iv. A Limit/Sensitivity Cross-Reference Schedule that cross-
references, by unique identification label, limits identified in the
Risk and Position Limits Information Schedule to associated risk
factor sensitivities identified in the Risk Factor Sensitivities
Information Schedule; and
    v. A Risk Factor Sensitivity/Attribution Cross-Reference
Schedule that cross-references, by unique identification label, risk
factor sensitivities identified in the Risk Factor Sensitivities
Information Schedule to associated risk factor attributions
identified in the Risk Factor Attribution Information Schedule.

d. Narrative Statement

    Each banking entity made subject to this appendix by Sec.
248.20 must submit in a separate electronic document a Narrative
Statement to the Board describing any changes in calculation methods
used, a description of and reasons for changes in the banking
entity's trading desk structure or trading desk strategies, and when
any such change occurred. The Narrative Statement must include any
information the banking entity views as relevant for assessing the
information reported, such as further description of calculation
methods used.
    If a banking entity does not have any information to report in a
Narrative Statement, the banking entity must submit an electronic
document stating that it does not have any information to report in
a Narrative Statement.

e. Frequency and Method of Required Calculation and Reporting

    A banking entity must calculate any applicable quantitative
measurement for each trading day. A banking entity must report the
Narrative Statement, the Trading Desk Information, the Quantitative
Measurements Identifying Information, and each applicable
quantitative measurement electronically to the Board on the
reporting schedule established in Sec.  __.20 unless otherwise
requested by the Board. A banking entity must report the Trading
Desk Information, the Quantitative Measurements Identifying
Information, and each applicable quantitative measurement to the
Board in accordance with the XML Schema specified and published on
the Board's website.

f. Recordkeeping

    A banking entity must, for any quantitative measurement
furnished to the Board pursuant to this appendix and Sec.
248.20(d), create and maintain records documenting the preparation
and content of these reports, as

well as such information as is necessary to permit the Board to
verify the accuracy of such reports, for a period of five years from
the end of the calendar year for which the measurement was taken. A
banking entity must retain the Narrative Statement, the Trading Desk
Information, and the Quantitative Measurements Identifying
Information for a period of five years from the end of the calendar
year for which the information was reported to the Board.

IV. Quantitative Measurements

a. Risk-Management Measurements

1. Risk and Position Limits and Usage

    i. Description: For purposes of this appendix, Risk and Position
Limits are the constraints that define the amount of risk that a
trading desk is permitted to take at a point in time, as defined by
the banking entity for a specific trading desk. Usage represents the
value of the trading desk's risk or positions that are accounted for
by the current activity of the desk. Risk and position limits and
their usage are key risk management tools used to control and
monitor risk taking and include, but are not limited to, the limits
set out in Sec.  248.4 and Sec.  248.5. A number of the metrics that
are described below, including ``Risk Factor Sensitivities'' and
``Value-at-Risk,'' relate to a trading desk's risk and position
limits and are useful in evaluating and setting these limits in the
broader context of the trading desk's overall activities,
particularly for the market making activities under Sec.  248.4(b)
and hedging activity under Sec.  248.5. Accordingly, the limits
required under Sec.  248.4(b)(2)(iii) and Sec.  248.5(b)(1)(i)(A)
must meet the applicable requirements under Sec.  248.4(b)(2)(iii)
and Sec.  248.5(b)(1)(i)(A) and also must include appropriate
metrics for the trading desk limits including, at a minimum, the
``Risk Factor Sensitivities'' and ``Value-at-Risk'' metrics except
to the extent any of the ``Risk Factor Sensitivities'' or ``Value-
at-Risk'' metrics are demonstrably ineffective for measuring and
monitoring the risks of a trading desk based on the types of
positions traded by, and risk exposures of, that desk.
    A. A banking entity must provide the following information for
each limit reported pursuant to this quantitative measurement: The
unique identification label for the limit reported in the Risk and
Position Limits Information Schedule, the limit size (distinguishing
between an upper and a lower limit), and the value of usage of the
limit.
    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks engaged in covered trading
activities.

2. Risk Factor Sensitivities

    i. Description: For purposes of this appendix, Risk Factor
Sensitivities are changes in a trading desk's Comprehensive Profit
and Loss that are expected to occur in the event of a change in one
or more underlying variables that are significant sources of the
trading desk's profitability and risk. A banking entity must report
the risk factor sensitivities that are monitored and managed as part
of the trading desk's overall risk management policy. Reported risk
factor sensitivities must be sufficiently granular to account for a
preponderance of the expected price variation in the trading desk's
holdings. A banking entity must provide the following information
for each sensitivity that is reported pursuant to this quantitative
measurement: The unique identification label for the risk factor
sensitivity listed in the Risk Factor Sensitivities Information
Schedule, the change in risk factor used to determine the risk
factor sensitivity, and the aggregate change in value across all
positions of the desk given the change in risk factor.
    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks engaged in covered trading
activities.

3. Value-at-Risk and Stressed Value-at-Risk

    i. Description: For purposes of this appendix, Value-at-Risk
(``VaR'') is the measurement of the risk of future financial loss in
the value of a trading desk's aggregated positions at the ninety-
nine percent confidence level over a one-day period, based on
current market conditions. For purposes of this appendix, Stressed
Value-at-Risk (``Stressed VaR'') is the measurement of the risk of
future financial loss in the value of a trading desk's aggregated
positions at the ninety-nine percent confidence level over a one-day
period, based on market conditions during a period of significant
financial stress.
    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: For VaR, all trading desks engaged in covered
trading activities. For Stressed VaR, all trading desks engaged in
covered trading activities, except trading desks whose covered
trading activity is conducted exclusively to hedge products excluded
from the definition of ``financial instrument'' under Sec.
248.3(d)(2).

b. Source-of-Revenue Measurements

1. Comprehensive Profit and Loss Attribution

    i. Description: For purposes of this appendix, Comprehensive
Profit and Loss Attribution is an analysis that attributes the daily
fluctuation in the value of a trading desk's positions to various
sources. First, the daily profit and loss of the aggregated
positions is divided into three categories: (i) Profit and loss
attributable to a trading desk's existing positions that were also
positions held by the trading desk as of the end of the prior day
(``existing positions''); (ii) profit and loss attributable to new
positions resulting from the current day's trading activity (``new
positions''); and (iii) residual profit and loss that cannot be
specifically attributed to existing positions or new positions. The
sum of (i), (ii), and (iii) must equal the trading desk's
comprehensive profit and loss at each point in time.
    A. The comprehensive profit and loss associated with existing
positions must reflect changes in the value of these positions on
the applicable day.
    The comprehensive profit and loss from existing positions must
be further attributed, as applicable, to changes in (i) the specific
risk factors and other factors that are monitored and managed as
part of the trading desk's overall risk management policies and
procedures; and (ii) any other applicable elements, such as cash
flows, carry, changes in reserves, and the correction, cancellation,
or exercise of a trade.
    B. For the attribution of comprehensive profit and loss from
existing positions to specific risk factors and other factors, a
banking entity must provide the following information for the
factors that explain the preponderance of the profit or loss changes
due to risk factor changes: The unique identification label for the
risk factor or other factor listed in the Risk Factor Attribution
Information Schedule, and the profit or loss due to the risk factor
or other factor change.
    C. The comprehensive profit and loss attributed to new positions
must reflect commissions and fee income or expense and market gains
or losses associated with transactions executed on the applicable
day. New positions include purchases and sales of financial
instruments and other assets/liabilities and negotiated amendments
to existing positions. The comprehensive profit and loss from new
positions may be reported in the aggregate and does not need to be
further attributed to specific sources.
    D. The portion of comprehensive profit and loss that cannot be
specifically attributed to known sources must be allocated to a
residual category identified as an unexplained portion of the
comprehensive profit and loss. Significant unexplained profit and
loss must be escalated for further investigation and analysis.
    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks engaged in covered trading
activities.

c. Positions, Transaction Volumes, and Securities Inventory Aging
Measurements

1. Positions

    i. Description: For purposes of this appendix, Positions is the
value of securities and derivatives positions managed by the trading
desk. For purposes of the Positions quantitative measurement, do not
include in the Positions calculation for ``securities'' those
securities that are also ``derivatives,'' as those terms are defined
under subpart A; instead, report those securities that are also
derivatives as ``derivatives.'' \421\ A banking entity must
separately report the trading desk's market value of long securities
positions, market value of short securities positions, market value
of derivatives receivables, market value of derivatives payables,
notional value of derivatives receivables, and notional value of
derivatives payables.
---------------------------------------------------------------------------

    \421\ See Sec. Sec.  248.2(i), (bb). For example, under this
part, a security-based swap is both a ``security'' and a
``derivative.'' For purposes of the Positions quantitative
measurement, security-based swaps are reported as derivatives rather
than securities.
---------------------------------------------------------------------------

    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks that rely on Sec.  248.4(a)
or Sec.  248.4(b) to conduct underwriting activity or market-making-
related activity, respectively.

2. Transaction Volumes

    i. Description: For purposes of this appendix, Transaction
Volumes measures four exclusive categories of covered trading

activity conducted by a trading desk. A banking entity is required
to report the value and number of security and derivative
transactions conducted by the trading desk with: (i) Customers,
excluding internal transactions; (ii) non-customers, excluding
internal transactions; (iii) trading desks and other organizational
units where the transaction is booked in the same banking entity;