A financial group with several legal entities has entered into a trade with a client. In the group's handling of the trade, what does "booking" decide?
Quiz: Booking Models
Last reviewed: October 2, 2026
This is a draft, shown for review before publication.
5 questions to check your understanding of the chapter “Booking Models”. Choose an answer and select “Check answer” to see the answer and explanation. You can also open “Answer and explanation” to see the answer first.
Question 1
Answer and explanation
Answer: B
Booking means deciding which legal entity in the group carries the trade on its books. The entity that carries it is the booking entity. It can be the same legal entity as the sales entity that deals with the client, or it can be a different one.
Booking is not the same as trade capture, which records an executed trade in a system. What booking decides is the entity that carries the trade. It does not decide who enters the trade into a system, or which department manages collateral or matches confirmations.
Learn more: Choosing the Booking Entity
Question 2
As a hypothetical example, a client and a financial group have two trades. The market values are from the group's point of view: trade 1 is +1 billion yen and trade 2 is −800 million yen (plus means the group receives, minus means it pays). Assume no collateral and that close-out netting is valid. If the client defaults, how does the amount the group could lose compare when both trades are with the same entity under one master agreement and when they are with different entities under separate master agreements?
Answer and explanation
Answer: C
With one master agreement with the same entity, close-out netting adds up the values of the two trades into a single claim or obligation. Netting +1 billion yen and −800 million yen gives +200 million yen, so the group could lose 200 million yen. With separate master agreements for different entities, +1 billion yen and −800 million yen cannot be netted. The amount the group could lose is 1 billion yen, from the trade in which it is owed money.
Now consider the opposite move, with trade 1 at −1 billion yen and trade 2 at +800 million yen. With the same entity, netting gives −200 million yen. The group is on the paying side, so the amount it could lose is 0 yen. With different entities, the amount it could lose is 800 million yen, from the trade in which it is owed money. In both directions, the amount at risk is larger with different entities. However, some contracts are built to net trades with several entities under one master agreement, so the actual amount depends on the contract and legal review.
Learn more: Choosing the Booking Entity
Question 3
As a hypothetical example, a client enters into an interest rate swap with the entity that deals with the client (the sales entity), with a notional amount of 10 billion yen, paying a fixed rate of 1% and receiving a floating rate. The sales entity enters into an opposite-direction trade on the same terms with the entity in the same group that carries the trade on its books (the booking entity). If the average floating rate over one year is 1.5%, what is the net of the payments for the year at the sales entity and at the booking entity, ignoring fees and day counts?
Answer and explanation
Answer: A
The two trades have the same notional amount, term, fixed rate and other terms, so the sales entity's payments offset each other and its net is 0 yen. The client's gain or loss appears at the booking entity in the opposite direction. The booking entity receives a fixed 100 million yen (10 billion yen × 1%) from the sales entity and pays a floating 150 million yen (10 billion yen × 1.5%), a net loss of 50 million yen. The client gains 50 million yen in this case.
If the floating rate averages 0.5%, the direction reverses. The booking entity receives a fixed 100 million yen and pays a floating 50 million yen, a gain of 50 million yen. The client loses 50 million yen, and the sales entity again nets 0 yen. A difference remains at the sales entity only when the terms of the two trades differ. For example, if the sales entity pays the booking entity a fixed rate of 1.1%, 10 million yen a year is left as a cost to the sales entity.
A trade in which the entity that dealt with the client enters into an opposite-direction trade on the same terms with another entity in the group is an intragroup back-to-back trade. It moves the part of the client trade's market risk (the changes in payments) to that entity.
Learn more: Intragroup Back-to-Back Trades
Question 4
When an authority carries out a transfer of business in resolution, what do the Financial Stability Board (FSB) Key Attributes (2024 revised version) ask for?
Answer and explanation
Answer: B
The Key Attributes ask that a transfer of business be able to move selected assets, liabilities, and rights and obligations to a sound third party or a newly established bridge bank. They also ask that the validity of the transfer not require the consent of creditors and others, and that the transfer itself not be a contractual default or termination event.
The items transferred are not limited to assets. The Key Attributes also ask that tools be usable singly, in combination, or in sequence, and that different tools be applied to different parts of the business. They ask for a legal framework under which resolution can proceed without relying on public ownership or a bailout fund, and for provisions to recover losses on funds provided temporarily for the resolution from shareholders and unsecured creditors.
Learn more: Recovery and Resolution Planning
Question 5
As a hypothetical example, under a US rule, Company J, a subsidiary of a large banking group, has an over-the-counter derivative with a counterparty, and the derivative is guaranteed by its holding company. When the holding company entered resolution proceedings, the net amount Company J owed was 1 billion yen. The counterparty can exercise a termination right based on the holding company's resolution after the stay period ends. If the net amount at termination after the period ends is 800 million yen, what is the counterparty's claim, ignoring fees?
Answer and explanation
Answer: D
The stay on early termination makes a termination right unusable for a short period. It does not extinguish the contract or freeze its value. The value of the trade keeps moving in the market during the stay, so the claim is the net amount at termination after the period ends, 800 million yen. The 1 billion yen view assumes the value is fixed at its amount at the start of the proceedings, the 0 yen view assumes the contract is extinguished, and the 200 million yen view assumes only the difference from the starting amount can be claimed. All three are mistaken.
The claim is 200 million yen lower than the 1 billion yen at the start of the proceedings, so this is a loss for the counterparty and a gain for Company J. If the net amount at termination were 1.2 billion yen, the claim would rise, a gain for the counterparty and a loss for Company J.
Learn more: Resolution stay protocols