A risk manager is tasked with measuring so many risks. Their mandate is broad and wide reaching: from measuring the size of the book to determining the right collateral is posted. The primary goals of Risk Management will help us drill down to the more granular risks to pay attention to:
Defend the castle would be the overarching statement
Defend firm’s market share
Protect firm’s profit margin
Maintain stabilized pricing in market making operations
Work closely with your analysts as well as sales people so you have all information on every trading desk, relationship manager (loans), client or prospect (asset purchases or mgmt.) and able to make final decisions.
Setting Up Risk Management Controls
Trading Desk (Business Unit) Level Policies Defined with respect to
Risk limits: Define Frequency and process for:
Stress Testing reported VaR figures
Back Testing reported VaR Figures
Designing A Hedging Policy:
Approved Hedging Products
Maximum Tenor for Products
Maximum amount which can be unhedged
Schedule External Audits and Benchmarks
Hire an auditor or Independent Consulting Firm
Can provide good information for regulators
Can keep risk managers up-to-date on industry trends
Sales Desk (Business unit) level Policies Defined with Respect to
Risk Management should have a redundancy point of contact to ensure all clients documentation is in order; salespeople are following the prescribed workflows & credit department is receiving the information from client as agreed.
Sales Person Compliance: Pitchbooks, emails and other client correspondence are approved by Compliance. A file should be maintained at Risk Management Level for ease and facility if a file is needed for an investigation. This allows risk management to operate privately without divulging an investigation is in process.
Create an Internal Risk Management Committee
Each task above is apportioned to a person or group
Regular meeting schedule of all participants locally
Head of local Risk Management Committees meet regularly to share what they’ve learned locally
Risk Managers come from a wide array of areas of an institution. Make sure your team includes the expertise and backgrounds your firm needs.
Junior staffing can be found from other risk mgmt. areas for career growth. These positions should be filled internally, if possible.
This overview provides a very shallow overview of implementing and operating a Market Risk management group.
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