IBANK 6.4.2 Measuring Commodities Risk

(1) An Islamic banking business firm must use the simplified approach to measure commodities risk.
(2) To calculate open positions using this approach, the firm may report short and long positions in each commodity on a net basis. Positions are reported on a net basis by offsetting them against each other in accordance with subrule (3).
(3) Positions in the same commodity may be offset. Positions in different commodities must not be offset unless:
(a) the commodities are deliverable against each other; or
(b) the commodities are close substitutes for each other and a minimum correlation between price movements of 0.9 can be clearly established over at least the preceding year.
An Islamic banking business firm must not use the correlation-based offsetting mentioned in paragraph (b) unless the Regulatory Authority has, in writing, allowed the firm to use it.
Derived from QFCRA RM/2015-2 (as from 1st January 2016).