We have used the term “trading desk” constantly since Article 1 — it is the level at which Internal Models Approach eligibility is granted, and it is the exact unit IMA banks must treat as a standalone portfolio when running their mandatory parallel Standardised Approach calculation, as we covered in Article 5B. MAR10 gave us a one-line working definition. MAR12 is where the standard finally spells out, in full, what a trading desk actually has to look like to be recognised as one.
The chapter opens by stating its own purpose plainly: it defines a trading desk, which is the level at which model approval is granted. That single sentence explains why this chapter exists at all — everything below it exists to make “trading desk” precise enough that supervisors can actually approve or reject one.
This is dense enough to split into two parts. Part A, below, covers the basic definition, who defines a desk and who approves it, and the first of three key structural attributes — the people and reporting lines that make up a desk. Part B covers the remaining two attributes — business strategy and risk management structure — along with the additional reporting requirements every desk must maintain.
Sourced from MAR12’s chapter introduction.
The Basic Definition
For the purposes of market risk capital calculations, a trading desk is a group of traders or trading accounts that implements a well-defined business strategy, operating within a clear risk management structure. Every requirement in the rest of this chapter is really just the standard unpacking what “well-defined business strategy” and “clear risk management structure” have to mean in practice.
Sourced from MAR12.1.
https://www.bis.org/basel_framework/chapter/MAR/12.htm?inforce=20230101&published=20200327
Who Defines a Desk, and Who Approves It?
Trading desks are defined by the bank itself, but every desk is subject to regulatory approval by the supervisor before it counts for capital purposes. The process works like this:
- A bank is allowed to propose a trading desk structure that follows its own organisational structure, as long as that structure is consistent with the detailed requirements set out later in this article.
- For every trading desk it defines, a bank must prepare a policy document specifically showing how that desk satisfies each of the key elements covered below.
- Supervisors treat the definition of a trading desk as part of the desk’s initial model approval, and as an ongoing approval requirement thereafter — not a one-time formality.
Within that ongoing supervisory role, two specific checks apply. Supervisors may judge, based on the overall size of a bank’s trading operations, whether the proposed trading desk definitions are sufficiently granular — a large, complex trading operation cannot get away with defining a handful of sprawling desks. And supervisors must separately check that each proposed desk definition actually meets the detailed criteria set out in the key elements below.
Sourced from MAR12.2.
Operational Subdesks Don’t Need Approval
Within a supervisor-approved trading desk structure, banks are free to define further operational subdesks without needing separate supervisory approval for them. The catch is that these subdesks exist purely for the bank’s own internal operational purposes — they are not recognised or used anywhere within the market risk capital framework itself. A bank can organise its internal reporting however granularly it likes below the approved desk level, but the capital calculations only ever see the approved desk.
Sourced from MAR12.3.
https://www.bis.org/basel_framework/chapter/MAR/12.htm?inforce=20230101&published=20200327
The Three Key Attributes of a Trading Desk
MAR12.4 sets out the substance of what makes a trading desk real, organised into three key attributes. This article covers the first in full; Part B covers the other two.
| Attribute | What It Covers | Covered In |
| 1. An unambiguously defined group of traders | Trading accounts, head trader rules, desk assignment, reporting lines, compensation | This article (Part A) |
| 2. A well-defined, documented business strategy | Economics of the strategy, primary activities, hedging approach, budgeting, MI reporting | Part B |
| 3. A clear risk management structure | Responsibilities, trading limits, weekly risk reports | Part B |
Attribute 1: An Unambiguously Defined Group of Traders
For regulatory capital purposes, a trading desk is an unambiguously defined group of traders or trading accounts. That word “unambiguously” is doing real work here — the standard goes on to define exactly what removes the ambiguity.
What Counts as a Trading Account
A trading account must be an indisputable and unambiguous unit of observation for accounting for trading activity. In other words, it has to be possible to point at a trading account and say, without argument, exactly what activity belongs to it.
Head Trader Rules
Every trading desk must have one head trader, and can have up to two, provided their respective roles, responsibilities and authorities are either clearly separated from each other, or one head trader has ultimate oversight over the other. Two further conditions apply directly to this structure:
- The head trader must have direct oversight of the group of traders or trading accounts that make up the desk.
- Each trader, or each trading account, within the desk must have a clearly defined specialty or specialities.
One Desk Per Trading Account, With a Defined Risk Scope
Each trading account may only be assigned to a single trading desk — an account cannot straddle two desks at once. Each desk must in turn have a clearly defined risk scope that is consistent with its pre-established objectives, and that scope must specify both the desk’s overall risk class and the specific risk factors it is permitted to take on.
Can a Trader Work Across Multiple Desks?
The default presumption is that both ordinary traders and head traders are each allocated to exactly one trading desk. A bank can deviate from this presumption — assigning an individual trader to work across several trading desks — but only where that arrangement can be justified to the supervisor on the basis of sound management, business, or resource allocation reasons.
| Why the “No Gaming” Clause Matters The standard adds a specific, pointed restriction here: multi-desk assignments must not be made for the sole purpose of avoiding other trading desk requirements — the example it gives is to optimise the likelihood of success in the backtesting and profit and loss attribution tests. This connects directly to terms we defined back in Article 4B: backtesting and P&L attribution (PLA) are the tests that validate whether a desk’s internal model is performing well enough to keep its IMA eligibility. A bank cannot use flexible trader assignment as a way to quietly reshuffle risk between desks until one of them happens to pass those tests. The desk structure has to reflect genuine management logic, not a search for the most favourable test outcome. |
Reporting Lines and Compensation
Rounding out this first attribute, every trading desk must have a clear reporting line to bank senior management, and should have a clear and formal compensation policy that is itself clearly linked to the desk’s own pre-established objectives — tying how traders are paid back to what the desk actually exists to do.
Sourced from MAR12.4(1), in full, including sub-points (a) through (e).
https://www.bis.org/basel_framework/chapter/MAR/12.htm?inforce=20230101&published=20200327
Looking Ahead
With the definition, the approval process, and the “who’s on the desk” structural rules now covered, Part B turns to the remaining two key attributes: how a desk documents its business strategy, and how it builds and reports on its risk management structure — plus the additional documentation every desk must keep on hand for supervisors, and one special rule for FX and commodity risk sitting in the banking book.
Frequently Asked Questions
Who approves a bank’s trading desk structure?
Banks propose their own trading desk structure, consistent with their organisational structure, but every desk requires supervisory approval, both as part of initial model approval and on an ongoing basis.
Can a trader work on more than one trading desk?
The default presumption is one trader per desk. Multi-desk assignment is allowed only with supervisory justification based on sound management, business, or resource reasons — and never solely to improve a desk’s chances of passing backtesting or P&L attribution tests.
Do operational subdesks need supervisory approval?
No. Banks can define operational subdesks within an approved trading desk for internal purposes without separate approval, but these subdesks are not recognised anywhere in the market risk capital framework.