The trading book of an institution shall consist of all positions in financial instruments and commodities held either with trading intent or in order to hedge other elements of the trading book and which are either free of any restrictive covenants on their tradability or able to be hedged.

Positions held with trading intent are those held intentionally for short-term resale and/or with the intention of benefiting from actual or expected short-term price differences between buying and selling prices or from other price or interest rate variations. The term ‘positions’ shall include proprietary positions and positions arising from client servicing and market making.

Trading intent shall be evidenced on the basis of the strategies, policies and procedures set up by the institution to manage the position or portfolio in accordance with Part A of Annex VII.

Institutions shall establish and maintain systems and controls to manage their trading book in accordance with Parts B and D of Annex VII.

Internal hedges may be included in the trading book, in which case Part C of Annex VII shall apply.