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Trading Market Risk (ERMTP-Intermediate)

Trading Market Risk

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Why is Managing Market Risk Crucial for Citi?

Imagine a world where the prices of everything – stocks, bonds, currencies, even coffee beans – constantly fluctuate. This is the world of market risk, where the possibility of financial loss due to these price changes is very real.

Managing market risk is crucial for a financial institution like Citi.

Unmanaged market risk can lead to significant losses, impacting Citi's capital and earnings. Effective risk management acts as a shield, protecting the bank from adverse market movements.

As an Example: A sudden rise in interest rates could decrease the value of Citi's bond holdings, leading to potential losses.

Regulators require financial institutions to have robust risk management frameworks. Compliance with these regulations helps Citi avoid penalties and maintain a good reputation.

This training is designed to provide a comprehensive overview of key market risk concepts, and Citi's framework for managing market risk, and how price risk fits within this framework.

This training will take approximately 25 minutes to complete.

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Citi’s Enterprise Risk Management Training Program

Enterprise Risk Management Training Program Risk And Controls Policy Knowledge Common Risk and Controls Skills Specialized Risk and Control Skills

Why This?

This course is part of Citi's Enterprise Risk Management Training Program (ERMTP), a series of courses which will build your understanding of your risk and control responsibilities.

Why Now?

The Enterprise Risk Management Framework (ERMF) is Citi’s standard for managing risk. As part of Citi’s Enterprise Risk Management Framework (ERMF) supporting capabilities, we are committed to equipping all Citi staff with knowledge and training to carry out day-to-day risk and control responsibilities.

Why Us?

Managing risk is everyone’s job at Citi. We are all risk managers. Risk is inherent to Citi’s business and cannot be avoided. Everyone must be vigilant and manage risk with consistency and accountability, including compliance with applicable laws and regulations.

What’s the Win?

Awareness and consistent understanding of risk and controls policy knowledge, roles, and responsibilities across all lines of defense.

Introduction to the ERMF


The ERMF establishes an overarching, integrated, and consistent approach to risk management firmwide.

This training will specifically focus on Market Trading Risk within Pillar 3 (Risk Management) of the ERMF.

The four pillars of Citi’s ERM Framework.
Pillar 1: Culture includes Values, Behaviors and Leadership Principles, and Performance Management
Pillar 2: Governance includes Board and Management, Board Oversight, Delegation, Executive Management, Committees and Escalation, Lines of Defense, and Policies, Standards and Procedures.
Pillar 3: Risk Management covers the Risk Management Lifecycle (Identify, Measure, Monitor, Control, Report), Financial Risks (Credit, Market (Trading), Market (Non-Trading), Liquidity), and Non-Financial Risks (Operational, Compliance, Strategic, Reputation).
Pillar 4: Enterprise Programs covers Enterprise Risk Identification, Risk Appetite and Limits, Stress Testing, Strategic Planning, and New Activities Approval.
Supporting Capabilities are: Talent, Performance Management and Compensation; Communication and Training; Technology and Data; and Models and Analytics.

Course Learning Objectives

After completing this course, you will be able to:

  • Explain how Trading Market Risk forms a significant component of Price Risk.
  • Define Key Market Risk Metrics.
  • Summarize Citi’s Market Risk Limit Framework.
  • Describe the Large Complex Illiquid Trade Pre-Approval Process.
  • Define when Wall Crossing would be required.
  • Describe why a position would be crossed from Trading Book to Banking Book.

Completion Criteria

This course contains a final assessment. You must score 80% or higher on the assessment to receive credit for this training.

This course also includes an optional Test-Out. If you pass, you can bypass the course content and final assessment and receive credit for completion.

If you prefer you can skip the Test-Out and go straight to the content.

Price Risk and Market Risk

Managing Price Risk

Citi manages Price Risk, which includes Trading Market Risk exposures and Financial Statement Reporting Risks, using an integrated framework.

Price Risk = Trading Market Risk, plus the Financial Statement Reporting Risks associated with independent price verification and profit attribution analysis.

Price Risk Focus

Price Risk is equivalent to Trading Market Risk in terms of quantity of risk (as mentioned in Section 2.1.2 of Price Risk Framework).

Price Risk has an incremental scope that includes the economic exposure of non-trading products held in the trading business under Market Risk Trading.

Price Risk Categories

Managing Price Risk requires active participation from the Business, Controllers (Valuation Control Group and Product Control), and Market Risk Management, along with effective processes in place to identify, measure, monitor, control, and report Price Risk in aggregate.

The Price Risk Framework outlines the risks, roles and responsibilities required at each level.

To proceed, select the terms below for additional information on our valuation framework.

 

Business Activity

Lists the activities that generate Price Risk (refer to Section 1.1.1).

Firmwide Activities

Represents the firmwide risk management processes, which set the enterprise level requirements that support Price Risk management. These activities are covered by the Enterprise Risk Management Framework

Business Processes

Lists the processes which are the primary responsibility of the Business. (refer to Section 2.7.2).

Controllers Processes

Lists the processes which are the primary responsibility of Valuation Control Group and Product Control within the Controllers organization (refer to Section 2.7.3).

Market Risk Management Processes

Lists the processes which are the primary responsibility of Market Risk Management (refer to Section 2.7.4).

Internal Audit

Represents the Internal Audit function. Refer to the Enterprise Risk Management Framework for a summary of Internal Audit responsibilities.

Cross-functional Processes

Lists the processes that are cross-functional across the Business, Independent Risk Management, Valuation Control Group and Product Control. These processes are governed by the relevant enterprise-wide risk management and governance policies and standards (e.g., Citi Model Risk Management Policy, applicable to C.2 Models and Methodologies).

Regulatory Guidelines

Basel 2.5 was introduced as an interim set of reforms following the 2008 financial crisis to strengthen the market risk capital framework. While it continued to rely on the Value-at-Risk (VaR) approach, it added enhancements to better capture stressed market conditions.

In contrast, the Fundamental Review of the Trading Book (FRTB) is a comprehensive overhaul intended to replace Basel 2.5. It addresses key limitations of the earlier framework, especially its weak tail risk capture and inconsistent application across banks, by introducing Expected Shortfall (ES), stricter model validation, and a clearer boundary between the trading and banking books.

Market Risk Metrics by Basel Pillars

We use risk metrics outlined in regulatory guidelines, including Basel 2.5 and FRTB, to monitor market risk.

To proceed, select each Basel Pillar to learn more.

Pillar I:
Minimum Capital Requirements
Pillar II:
Supervisory Review Process
Pillar III:
Market Discipline

Pillar I:
Minimum Capital Requirements

Key Metrics
Value at Risk (VaR), Incremental Risk Charge (IRC), Comprehensive Risk Measure (CRM)

Usage
Calculation of minimum capital requirements for market risk and credit risk in the trading book. Factor sensitivities are foundational inputs for VaR, IRC, and CRM calculations.

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Pillar II:
Supervisory Review Process

Key Metrics
Stress Tests, Incremental Default Loss (IDL)

Usage
Assessment of a bank's overall risk profile, capital adequacy, and resilience to adverse economic conditions.

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Pillar III:
Market Discipline

Key Metrics
Disclosure of VaR, Stress Test Results, Capital Adequacy

Usage
Enhancing transparency and allowing market participants to assess a bank's financial health.

Key Metrics

We use key metrics for help measure, monitor, and manage potential losses resulting from adverse market movements.

To proceed, select each key metric to learn more.

 

Factor Sensitivities

  • Measures the change in the value of a portfolio or asset in response to changes in underlying risk factors.
  • Examples of risk factors include interest rates, credit spreads, equity prices, and commodity prices.
  • Serves as the foundational input for calculating risk.

Value at Risk (VaR)

  • A statistical measure of the maximum potential loss that a portfolio could incur over a given holding period (e.g., 10 days) with a specified confidence level (e.g., 99%).
  • Primary measure for general market risk under IMA. Calculated daily.

Stressed Value-at-Risk (SVaR)

  • VaR calculated using a 12-month historical observation period of significant financial stress relevant to the bank's portfolio.
  • Introduced to capture tail risk and procyclicality, addressing the weakness of VaR during crisis periods.

Component VaR (cVAR)

  • A risk attribution measure that tells you how much each individual position or asset contributes to the total portfolio VaR.

Conditional VaR

  • CVaR measures the VaR of a given Citigroup Legal Entity conditioned on the cancellation of its Over-the-Counter (OTC) and Securities Financing Transaction (SFT) trades with another or other Citigroup Legal Entities.

Incremental Risk Charge (IRC)

  • Capital charge designed to capture default and credit migration risk for unsecuritized credit products in the trading book.
  • Covers the jump-to-default and credit rating downgrade risks beyond general market movements.
  • Comprehensive Risk Measure (CRM): Capital charge for specific securitization exposures (Correlation Trading), accounting for idiosyncratic default risk and other risks.
  • Aimed at capturing the complex risks of correlation-sensitive products.

Comprehensive Risk Measure (CRM)

  • Subject to the prior approval of regulators, a bank is authorized to use the CRM to measure all comprehensive risk (i.e., all price risk) for one or more portfolios of credit correlation trading positions.
  • If the CRM approach is chosen, the calculation must be done at least weekly. CRM is calculated over a one-year time horizon at a one-tail, 99.9% confidence level, either under the assumption of a constant level of risk, or under the assumption of constant positions.
  • Market Risk Analytics, Risk Data Governance & Management, Business, and the Market Risk Managers are jointly responsible for overseeing the production of the CRM calculations, and are ultimately responsible for ensuring their integrity.

Value-at-Risk (VaR) Methodologies

The following are all subtypes or enhancements of simulation-based VaR techniques.

To proceed, select each button to learn more about Value at Risk.

Monte Carlo Simulation (MC VaR)
Historical Simulation (HVaR)
Risk-Based HVaR
Full Revaluation HVaR
Hybrid HVaR

Monte Carlo Simulation (MC VaR)

The legacy metric, but is still used to monitor risk and calculate risk capital.

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Historical Simulation (HVaR)

An advanced calculation that estimates potential losses using historical market data applied to the current portfolio.

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Risk-Based HVaR

Approximates exposure using sensitivities to risk factors and their historical distributions.

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Full Revaluation HVaR

Revalues the entire portfolio under each historical scenario for accuracy.

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Hybrid HVaR

Uses full revaluation primarily, but falls back to a risk-based approach if full revaluation fails in a scenario.

VaR Time Horizons

VaR Time Horizons refer to the holding period over which Value-at-Risk is calculated.

  • 1-Day VaR: Commonly used for daily risk management, intraday trading risk assessment, and regulatory reporting that requires daily risk updates.
  • 10-Day VaR: Frequently employed for regulatory capital calculations (e.g., under Basel Accords), medium-term risk assessments, and strategic decision-making processes that consider a longer time frame.
  • 1d vs 10d: Estimates the maximum loss expected over one day or ten days.

Stress Testing

Stress tests evaluate the impact of extreme but plausible market scenarios on the trading book's maximum losses under defined scenarios. The following categories are the purposes of stress testing at Citi.

To proceed, select each category to learn more.

Risk Management
Ad-hoc Stress Testing (e.g., Rapid)
Capital Adequacy Assessment and Planning (e.g. CCAR/DFAST)

Risk Management

Global Market Risk Stress Losses are monitored against Market Risk limits and against Capital-Based Stress Loss (CBSL) limits.

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Ad-hoc Stress Testing (e.g., Rapid)

Used in cases of emerging risks and/or unforeseen changes to the macro-economic environment to inform senior management of the potential impact of imminent or active risks using a quick and forward-looking assessment.

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Capital Adequacy Assessment and Planning (e.g. CCAR/DFAST)

Supports capital planning and business planning processes including, but not limited to, the Federal Reserve’s annual Comprehensive Capital Analysis and Review (CCAR) exercise, the Federal Reserve’s and Office of the Comptroller of the Currency’s Dodd-Frank Act Stress Testing (DFAST) exercise, and the quarterly Capital Adequacy Assessment.

Data Feed Generation for Key Metrics

The data feed process begins with daily submissions from front office risk systems to the relevant risk measurement platforms. These feeds must be delivered in line with agreed timelines and service level agreements to ensure timely generation of formal risk metrics.

Upon receipt of the data, Risk IT systems initiate a preliminary risk run to produce early risk figures in CitiRisk Market Risk (CRMR). For Trading Market Risk Stress Loss, the Risk IT team uses the Analytical Calculation Engine ( ACE) platform to perform both full revaluation and factor sensitivity-based stress loss calculations.

The results are then merged, incorporating automated adjustments and handling any feed failures or delays as needed. These preliminary results are made available in the CitiRisk Integrated Signoff Platform (CRISP) for early review.

Key Metric Sign Off Requirements

Once the final runs are completed; the Risk Managers access and review the risk metric results for their nodes within the CitiRisk Integrated Signoff Platform (CRISP).

This User Interface (UI) is refreshed periodically as the metrics are processed throughout the day. The Risk Managers can drill down on the various metrics by clicking on the respective node and toggling through the results across the various hierarchy levels.

These metrics are required to be signed off on the CRISP platform for three different levels, when applicable (e.g. some nodes are not applicable to Legal Entities).

Examples of metrics signed off are:

  • Monte Carlo and Historical VaR, SVaR
  • Market Risk Stress Loss
  • FRTB SA

Level 1 (Total Trading) is signed off by the Head of Global Market Risk (GMR).

Level 4 (Business Level) is approved by the Product Risk Heads. Volcker Desk-level sign-off is conducted by the respective Desk Market Risk Managers, while Legal Entity-level sign-off is performed by the Legal Entity Risk Managers.

Coming Next

Next, we’ll examine how the Market Risk Limit Framework identifies, measures, monitors, manages and reports Mark-to-Market (MTM) Risk.

Market Risk Limit Framework

Multi-pronged Approach

The overarching goal of Market Risk Management is to safeguard the bank's financial stability and ensure regulatory compliance.

The Market Risk Limit Framework exists to prevent excessive exposure to a single risk factor or group of related risk factors.

This is achieved through a multi-pronged approach which identifies, measures, monitors, manages and reports Mark-to-Market (MTM) Risk.

This involves establishing clear, standardized, and repeatable processes for:

  • Identifying potential market risks across all portfolios and business lines
  • Measuring the potential financial impact of these risks
  • Continuously monitoring market conditions and portfolio positions
  • Implementing appropriate hedging and risk mitigation strategies
  • Reporting market risk exposures to senior management and regulators

Limit Structure

Limits can be defined on any of the Market Risk Key Metrics, if deemed material.

Limits are set at multiple levels in the organizational hierarchy, including:

  • Citigroup
  • Global Markets
  • Product Groups or Businesses
  • Mark-to-Market Risk Desks = Volcker Desks
  • Clusters
  • Legal Entities
  • Countries
  • Specifically defined categories of transactions

Limit Categories

Think of Citi's Market Risk Limit Framework as a sophisticated security system with multiple layers of protection.

To proceed, select each category to learn more.

 

Tier 0 (Market Risk Concentration Limits)

This is the highest level of defense, covering the entire Market Risk Trading Risk Pool and associated Concentration Risk Identification Thresholds (CRITs).

It sets overall limits for market risk-taking across the entire trading operation.

Tier 1 (Global Markets Division Limits)

This layer sets limits for trading activities within specific divisions, like the Global Markets division.

Tier 2 (Product/Business Limits)

This layer focuses on specific products or business lines within a division, such as bonds or foreign exchange.

Tier 3 (Risk Desk Limits)

This layer sets limits for individual trading desks, ensuring that each team operates within their risk appetite.

Additional Metrics

In addition to these limits, the framework also includes Management Action Triggers (MATs) and Early Warning Triggers (EWTs) that are assigned to CAT A-B-C limits.

These act as "alarm bells" that ring when potential market risk concentrations or tail risks arise. While breaches of these triggers don't necessarily constitute violations, they require immediate reporting and analysis.

Citigroup / CBNA — Proactive Management Through
Category A — Management Action Triggers (MAT)
Category B and C — Early Warning Triggers (EWT)

Additionally, at the discretion of market risk managers, informal “triggers” may be used separate from official Management Action Triggers to signal early warnings of increasing limit usage.

Classification of Market Risk Limit Framework against ERM Categories

While market risk management have its own internal tiering system (as per "Limit Categories"), Enterprise Risk Management (ERM) has implemented a standardized classification system for limits across the entire enterprise. This system is based on the maximum amount of stress loss and risk capital associated with the limits, categorizing them as follows:

Category B / C:

  • Limit greater than or equal to $1.2 billion in stress loss, OR
  • Limit greater than or equal to $1.0 billion in risk capital

Category D:

  • Limit less than $1.2 billion in stress loss, OR
  • Limit less than $1.0 billion in risk capital

To proceed, select each category to learn more.

Category A
Category B
Category C
Category D

Category A

Risk Metric Type: Firm-Wide

Citigroup and CBNA Limits:
Risk Appetite limits and thresholds, corresponding to Market Risk Tier 0 limits

Description of Risk Metrics in scope:
Risk Metrics whose limit breach may have a significant adverse impact on Citi’s ongoing ability to carry on business, meet client obligations, and/or comply with regulatory requirements.

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Category B

Risk Metric Type: Firm-Wide

Citigroup and CBNA Limits:
Enterprise risk limits and thresholds, corresponding to Market Risk Tier 0/1 limits

Description of Risk Metrics in scope:
Any other Citigroup or CBNA level Risk Metrics not already included in Category A

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Category C

Risk Metric Type: Sector-Level

Citigroup and CBNA Limits:
Risk category or major business risk limits and thresholds, corresponding to Market Risk Tier 2 limits

Description of Risk Metrics in scope:
Business Level and CBNA Legal Entity Level Risk Metrics, subject to the stress loss materiality threshold

Category D

Risk Metric Type: Sector-Level

Citigroup and CBNA Limits:
Operating risk limits and thresholds, corresponding to Market Risk Tier 2/3 limit

Description of Risk Metrics in scope:
All Tier 2 or 3 limits, subject to the stress loss materiality threshold

Annual and Quarterly Limit Reviews

Quarterly Limit Reviews (QLR)

  • Limit Usage Monitoring: Tracks both high and low usage limits (lower than 60%) and those affected by model changes.
  • Specific Limit Requirements: Volcker Limits are subject to additional requirements, such as Reasonably Expected Near-Term Demand (RENTD) analysis
  • RMH Limits are subject to additional requirements as outlined in Volcker Rule: Risk-Mitigating Hedging Standard.

Annual Limit Reviews (ALR)

  • Risk Appetite Ratio Analysis: Assesses RAR appropriateness based on the proposed Limit structure.
  • Limit Structure Review: Updates based on business strategy, restructuring, or mandate changes.
  • Climate Risk: Considers and monitors climate risk impact on limits.
  • Specific Limit Requirements: Adherence to Single Issuer, Volcker, and RMH limit requirements.
  • Budgeted RAR Analysis: Analysis of budgeted RAR, relating EBIT to stress loss estimates.

Scenario: False Breach

A trading desk builds several directional positions over time. Utilization then spikes and approaches the risk limit. The next day, a limit breach occurs due to routine market movements (such as FX rate fluctuations) despite no significant trading activity.

In this situation, what process should be followed? Read on to learn more.

Step 1: The limit inventory, Limit Central, sends out an automated notification to the previously identified stakeholders in 1LOD and 2LOD.

Step 2: The Risk manager immediately engages with the trading desk. During their review of the high utilization, the desk identifies a sudden spike in utilization on a specific account.

Step 3: The desk determines that the reported risk on the account is inaccurate and submits a request for technology remediation.

Step 4: The risk manager evaluates the remediation plan and examines the details surrounding the overestimated risk.

Step 5: After review, the risk manager concludes that the breach was due to a reporting feed error and classifies it as a false breach.

Scenario: Response Flow

In this situation, what process should be followed?

  • The desk plans to execute a large trade that will affect multiple risk limits.
  • A comprehensive request is submitted to the risk manager to review and approve increases across several limits.
  • The risk manager reviews the request, approves the proposed limit increases, and initiates the necessary workflows in Limit Central.
  • The trade is executed; however, a limit breach occurs despite the prior approvals.

Step 1:

The risk manager notifies the desk of the breach and requests a remediation plan.

Step 2:

The desk explains that the breach resulted from the recently executed trade and acknowledges that the affected limit was unintentionally omitted from the original request.

Step 3:

The risk manager classifies the breach as a true breach and assesses whether the limit can be subsequently increased.

Coming Next

Next, we’ll examine the factors considered in assessing complexity and liquidity.

Large Complex Illiquid Trades, Pre-Trade Approvals

LCI Definition

GMR defines Large, Complex, and Illiquid (LCI) trades based on their relative complexity and liquidity. Several factors are considered in assessing complexity and liquidity:

  • Complexity: Global Market Risk assesses product complexity based on the difficulty of risk defeasance and factors such as product type, attributes, categorization, and associated risk sensitivities.
  • Illiquidity: Global Market Risk assesses product illiquidity primarily based on an assessment of the product underlyings, currencies, issuer jurisdictions/market, issuer/tranche rating, and tenor.

Market Risk Managers also consider products typically classified as Level 3 (i.e., those with one or more significant unobservable input parameters) in the Fair Value Hierarchy (FVH) as defined by the Valuation Control Group (VCG) in the Fair Value Hierarchy Levelling Procedure.

LCI Thresholds

LCI thresholds are established using relevant, practical metrics tailored to each product type—such as notional amount, market value, or risk factor sensitivity.

These thresholds are determined on a standalone basis, without considering mitigating factors like syndication, distribution, or hedging strategies.

To proceed, select each item to learn more about LCI Thresholds.

 

Application

  • A transaction is evaluated holistically for LCI threshold purposes, encompassing all its component trades (e.g., structured products, portfolio trades, compression trades, or capital optimization trades). Individual legs or components are not assessed independently.
  • Any transaction that exceeds the applicable threshold is classified as an LCI trade and requires Pre-Trade Approval (PTA). Transactions at or below the threshold are not subject to PTA.
  • Thresholds are set by the designated Product Risk Manager for each asset class and apply universally, regardless of the trading desk’s primary asset class. For example, if an Equities desk executes an interest rate swap for hedging, the interest rate thresholds—rather than equities thresholds—will apply.

LCI Annual Review

  • The pre-trade approval framework must undergo an annual review by Global Market Risk (GMR).
  • Each business’s Product Market Risk Manager is responsible for reviewing the pre-trade approval criteria and methodology. This includes evaluating the complexity and liquidity classifications, as well as the threshold values, in the context of the business’s trading activity, supported by threshold utilization metrics and any changes in product complexity or liquidity.
  • Threshold utilization metrics—sourced from strategic infrastructure—should capture the cumulative frequency distribution of all new and amended trades, including the number of breaches, benchmarked against the established threshold rules.

Ad Hoc Threshold Changes

  • Product Market Risk Managers may approve ad hoc threshold changes as needed.
  • All ad hoc changes must be documented and submitted to the Global Market Risk CRO for review during the LCI Annual Review.

Pre-Trade Approval Process

The key components of the LCI Trade Pre-Trade Approval (PTA) process and the supporting T+1 controls are listed below.

These mechanisms ensure that LCI trades are properly identified, assessed, monitored, and escalated in line with Citi’s market risk governance framework.

To proceed, select each step to learn more.

PTA Request & Approval
T+1 Monitoring
Notifications

PTA Request & Approval

At trade booking, the Trader flags a trade as a potential LCI and submits a Pre-Trade Approval (PTA) request to Market Risk. Market Risk estimates the 1-in-10 stress loss. Based on this, the request is escalated to appropriate Business and Risk approvers for a decision (approve, revise, reject). If approved, the trade must be executed within 30 calendar days.

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T+1 Monitoring

An automated system scans newly booked and amended trades daily against LCI criteria. A report is generated for Risk Managers on T+1. This information highlights flagged trades and any exceptions.

Market Risk reviews exceptions to determine if they are false positives or actual breaches (violations). Traders must report any known rule violations to Market Risk Managers.

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Notifications

Desk Heads and Market Risk Managers receive automatic alerts for all T+1 violations via the supervisory alerting system.

Coming Next

Next, we’ll examine the key factors to consider when determining Trading Book (TB) and Banking Book (BB) Classification.

Trading Book/Banking Book Boundary

Eligibility Criteria for Regulatory Capital and TB/BB Boundary

Trading Book (TB) vs. Banking Book (BB) Classification Criteria
The classification between the Trading Book and Banking Book is based on several key factors, including:

  • Use of mark-to-market accounting
  • Intent to trade
  • Ability to trade
  • Specific product-based and activity-based inclusions and exclusions

Transferring Positions and Capital

This TB/BB classification has a direct impact on how positions are treated under the following Regulatory Capital requirements:

  • Trading Book positions are subject to Market Risk capital rules.
  • Banking Book positions fall under Banking Book or Securitization capital frameworks.

The TB/BB boundary is the primary factor that determines which set of Regulatory Capital rules applies and therefore drives the capital treatment of the positions.

To proceed, select each tab to learn more.

Transfer of Positions from the TB
to the NTB
Formal Process
Impact on RWA

Transfer of Positions from the TB to the NTB

Positions that may require transfer out of the Trading Book are identified during the quarterly ex-post review process. Global Market Risk collaborates with Finance and the Business to assess and flag positions for potential transfer to the Non-Trading Book (NTB), also known as the Banking Book.

Transfers are considered when positions no longer meet Trading Book eligibility criteria. Common reasons include:

  • A change in trading intent
  • Reduced liquidity
  • Insufficient trading activity or turnover
  • Exceeding approved holding periods

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Formal Process

A formal process must be followed for all TB-to-NTB transfers, which includes:

  • Identifying positions eligible for transfer
  • Conducting a Boundary Crosser Review to evaluate the appropriateness of the transfer
  • Defining a trading/exit strategy and setting exposure parameters
  • Securing approval from Credit Risk Management

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Impact on RWA

Specific to Trading Book Covered exclusions, if Regulatory Capital changes from Market Risk to Wholesale Credit Risk, Credit Risk is responsible for determining whether the counterparty has an active credit relationship with Citi, or needs an appropriate risk rating for the Wholesale RWA process.

Timeline

The following image shows a simple visual timeline that lays out the steps of transferring positions.

Classification: Classify positions as Trading Book or Banking Book. Capital Treatment: Apply the appropriate Regulatory Capital rules. Ex-Post Review: Identify positions for potential transfer. Transfer: Review and approve from the TB

Coming Next

Next, we’ll review a quick reminder on how to handle Material Non-Public Information (MNPI) and Information Barriers.

Handling MNPI and Information Barriers

Handling MNPI and Information Barriers

Let’s review some key points on handling Material Non-Public Information (MNPI) and Information Barriers.

To proceed, select the arrow on the right to learn more.

 

What is MNPI and Why Does It Matter?

MNPI refers to confidential information that, if made public, could influence market prices.

Protecting this information is essential to maintain market integrity and prevent insider trading.
 

Wall Crossing: A Controlled Sharing Process

Wall crossing allows MNPI to be shared with individuals who require it for legitimate business purposes.

This process ensures that confidentiality is maintained, and that the information is not misused.
 

The Information Barrier: Its Role and Importance

Information barriers are controls designed to separate public- and private-side teams.

Maintaining these barriers is critical to safeguarding MNPI and upholding regulatory compliance.
 

Sharing MNPI: When and How

MNPI can only be shared under specific, approved circumstances.

If you’ve been wall-crossed, it’s important to remember that your colleagues may not have been—exercise discretion and follow all communication protocols.
 

Prohibited Trading: Know Your Responsibilities

If you’ve received MNPI—whether intentionally or inadvertently—you must not trade on it. Engaging in or facilitating trading based on MNPI is strictly prohibited.
 

Need Help? Contact the Control Group

If you’re unsure about MNPI or the wall crossing process, reach out to your regional Control Group. Contact information is available in Appendix E of the MNPI Barrier Policy.

For full details, refer to the MNPI Barrier Policy.
 
 

Scenario: Sharing Sensitive Information with GMR

A Structurer, who themselves are private side, in Citi’s Equity Division is working on a large trade with a complex hedging structure. During structuring, the structurer needs to consult with Global Market Risk (GMR) to assess potential stress losses and limit impacts.

The transaction involves Material Non-Public Information (MNPI) that hasn’t been disclosed to the broader market.

Scenario: What Happens Next?

Although GMR typically operates on the public side, in this instance, the Trader realizes that sharing full trade details—including the issuer identity—could potentially expose MNPI.

To proceed, select each category to learn what happens next.

Pause
Review
Analyze

Pause

The Trader pauses the discussion and contacts the Control Group for guidance.

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Review

The Control Group reviews the context and approves a wall crossing for a specific GMR Risk Manager.

The Risk Manager receives formal wall-crossing notification, restricting their communications and trading activity on the impacted issuer.

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Analyze

The wall-crossed GMR Risk Manager reviews the proposed transaction, conducts a stress loss analysis, and provides guidance back to the Trader and desk leadership.

Other GMR personnel remain on the public side and are not included in discussions or data access.

Scenario: Summary

After risk sign-off and pre-trade approval, the trade is executed within 48 hours. The Control Group later confirms declassification of the MNPI, and the wall-crossed individual is de-walled following protocol.

This scenario underscores the importance of:

  • Knowing when to pause and consult on information sensitivity
  • Following proper wall-crossing procedures
  • Ensuring GMR engagement respects both functional responsibilities and information barriers

Even if GMR is typically a public-side function, discretion and compliance must guide all interactions—especially under increasing scrutiny of electronic communications and MNPI handling.

Coming Next

Next, we’ll review what you learned in this course.

Key Takeaways

Recap of What You Learned

Unmanaged market risk can cause major losses to Citi’s capital and earnings, while effective risk management protects against adverse market shifts. Regulators mandate strong risk frameworks, and compliance helps Citi prevent penalties and preserve its reputation.

To proceed, select each Takeaway to learn more.

#1
#2
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Takeaway #1

Trading Market Risk forms a significant component of Price Risk.

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Takeaway #2

Key Market Risk Metrics such as Value at Risk (VaR), Incremental Risk Charge (IRC), and Stress Testing are used to monitor and manage market risk.

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Takeaway #3

Citi’s Market Risk Limit Framework sets and reviews market risk limits at various organizational levels, including triggers and governance layers.

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Takeaway #4

The Large Complex Illiquid Trade Pre-Approval Process is used for identifying LCI trades, the steps in the pre-trade approval process.

Takeaway #5

Positions that may require transfer out of the Trading Book to the Banking Book are identified during the quarterly ex-post review process.

Transfers are considered when positions no longer meet Trading Book eligibility criteria. Common reasons include:

  • A change in trading intent
  • Reduced liquidity
  • Insufficient trading activity or turnover
  • Exceeding approved holding periods

Takeaway #6

MNPI can only be shared under specific, approved circumstances. If you’ve received MNPI—whether intentionally or inadvertently—you must not trade on it.

Engaging in or facilitating trading based on MNPI is strictly prohibited.

Coming Next

Now it’s time to check your understanding of the content by completing a short assessment.

What is the primary objective of Citi's Market Risk Limit Framework?

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Which of the following is NOT a Key Market Risk Metric?

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Which layer of market risk limits are set at trading desk level?

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What does wall crossing allow in a controlled environment?

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Which one of the following processes describe the daily review of newly booked trades, performed on the business day following trade execution, to identify and assess potential Large Complex Illiquid (LCI) Pre-Trade Approval (PTA) violations based on defined thresholds, subsequently requiring review by Market Risk Managers to distinguish true violations from false positives?

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How is Stressed Value-at-Risk (SVaR) different than Value at Risk (VaR)?

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Who signs off on Level 1 (Total Mark to Market Trading) key metrics in CRISP?

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When can a position be transferred from the Trading Book to the Banking Book?

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What is the purpose of the CRISP platform?

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Which one of these statements accurately describes the scope of Price Risk?

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Introduction

Price Risk and Market Risk

Market Risk Limit Framework

Large Complex Illiquid Trades, Pre-Trade Approvals

Trading Book/Banking Book Boundary

Handling MNPI and Information Barriers

Key Takeaways

Assessment

Home
Introduction
Price Risk and Market Risk
Market Risk Limit Framework
Large Complex Illiquid Trades, Pre-Trade Approvals
Trading Book/Banking Book Boundary
Handling MNPI and Information Barriers
Key Takeaways
Assessment

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