21.7.98 Official Journal of the European Communities L 204/13 DIRECTIVE 98/31/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 22 June 1998 amending Council Directive 93/6/EEC on the capital adequacy of investment firms and credit institutions THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular the first and third sentences of Article 57(2) thereof, Having regard to the proposal from the Commission ('), Having regard to the opinion of the Economic and Social Committee (2), Having regard to the opinion of the European Monetary Institute (3), Acting in accordance with the procedure laid down in Article 189b of the Treaty (%), (1) Whereas the risks associated with commodities trading and commodity derivatives are currently subject to Council Directive 89/647/EEC of 18 December 1989 on a solvency ratio for credit institutions (°); whereas, however, the market risks associated with those positions are not captured accurately by Directive 89/647/EEC; whereas it is necessary to extend the concept of the ‘trading book’ to positions in commodities or commodity derivatives which are held for trading purposes and are subject mainly to market risks; whereas institutions must comply with this Directive as regards the coverage of commodity risks on their overall business; whereas the perpetration of serious fraud by certain commodity futures traders is of growing concern to the Community and a O] C 240, 6.8.1997, p. 24, and O] C 118, 17.4.1998, p. 0OJ C 19, 21.1.1998, p. 9. Opinion delivered on 7 October 1997. Opinion of the European Parliament of 18 December 1997 (O] C 14, 19.1.1998), Council common position of 9 March 1998 (O] C 135, 30.4.1998, p. 7) and Decision of the European Parliament of 30 April 1998 18.5.1998). Council Decision of 19 May 1998. OJ L 386, 30.12.1989, p. 14. Directive as last amended by Directive 98/32/EC of the European Parliament and of the Council (see page 26 of this Official Journal). (0] C 152, threat to the image and integrity of the futures trading business; whereas it is desirable that the Commission  should consider defining an appropriate prudential framework in order to prevent these fraudulent practices in the future; Whereas Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment firms and credit institutions (°) lays down a standardised method for the calculation of capital requirements for market risks incurred by investment firms and credit institutions; whereas institutions have developed their own risk-management systems (internal models), designed to measure more accurately than the standardised method the market risks incurred by investment firms and credit institutions; whereas the use of more accurate methods of measuring risks should be encouraged; Whereas the use of such internal models for the purpose of calculating capital requirements requires strict internal control mechanisms and should be subject to recognition and supervision by the competent authorities; whereas the continued reliability of the results of the internal model calculation should be verified by a back-testing procedure; Whereas it is appropriate that competent authorities may allow margin requirements for exchange-traded futures and options, and on a transitional basis for cleared over-the-counter derivatives of the same nature, to be used as substitutes for the capital requirement calculated for such instruments in accordance with this Directive, provided that this does not lead to a capital requirement which is lower than the capital requirement calculated according to the other methods prescribed in this Directive; whereas the application of this principle does not require that (®y O] L 141, 11.6.1993, p. 1. Directive as amended by Directive 98/33/EC of the European Parliament and of the Council (see page 29 of this Official Journal).