This document outlines the requirements for compliance programs related to proprietary trading activities. It discusses the standard elements required for all compliance programs, including governance, policies and procedures, a system of controls, recordkeeping, training, and independent testing. For enhanced compliance programs, it specifies additional requirements such as separately documenting permissible market-making and hedging activities for each trading desk, quantitative risk measurements, limits on authorized risks and instruments, hedging policies, and procedures for investigating and remediating any violations. Banking entities with over $50 billion in assets but less than $10 billion in trading assets would be subject to the enhanced compliance program requirements without reporting quantitative metrics.

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Compliance program requirements: Standard
•A management framework that delineates responsibility and accountability for compliance
Governance
•Written policies and procedures reasonably designed to document, describe, monitor and limit activities for (1) covered funds and (2) proprietary trading activates
Policies and Procedures
•A system of internal controls reasonably designed to monitor compliance
•Controls support the policies and procedures
System of Controls
•Records sufficient to demonstrate compliance with the rule and retained for five years
Recordkeeping
•Training for trading personnel and managers, as well as other “appropriate” personnel
Training
•Independent testing of the compliance program
•Can be undertaken by internal audit or third party
Independent Testing

2. © 2014 Grant Thornton LLP. All rights reserved.
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Compliance program requirements: Enhanced
•The policies and procedures must describe the process for identifying the financial instruments each trading desk may buy or sell, with separate documentation for permissible market-making and hedging activity.
Trading Desks
•Written policies and procedures reasonably designed to document, describe, monitor and limit activities for the range of risks undertaken
•Must address end to end risk management process
Description of risks and risk management program
•The risk limits for each trading desk should be based on quantitative measures of potential loss and associated system of controls
Authorized risks, instruments and products
•Risk-mitigating hedging instruments and strategies and responsibilities
Hedging policies and procedures
•Risk and Position Limits and Usage, Risk Factor Sensitivities
•Value at Risk ( "VaR") and stress VaR, Comprehensive Profit and Loss Attribution, Inventory Turnover and Inventory Aging
•Customer Facing Trading Ratio-Trade count based and value based
Analysis and quantitative measurements
•Procedures for immediate review and investigation of the trading desk’s activities, escalation to senior management, and timely notification to the regulator
Remediation of violations
Standard elements of a compliance program and the specific procedures to address the areas below
Banking entities with total assets of $50 billion or more but trading assets and liabilities of less than $10 billion would be subject to the enhanced program without metrics.