Front Office Limit Management – Don’t Get Burnt
If you play with fire, you are likely to get burnt.
On the back of the increasing global economic pressures of recent times, financial markets and regulatory bodies assert ever more pressure on organisations in the face of growing demand to control risk. No organisation can afford to be ill-equipped to trade in the market and banks need more than ever to implement high levels of supervision and management of risk. One of the key areas under the spotlight is the management of limits in the dealing room.
Banks must take a holistic approach and not allow traders to take a narrow view. If a key risk is overlooked the price paid can be heavy, as has been seen in recent cases where traders have exposed banks to huge risks…and lost. To monitor risk effectively, front-office systems must have access to the relevant wider picture beyond the trades executed purely on that platform. The dealing room should cast the net wide when managing risk, taking into account limits against counterparties, countries, trading limits, products and traders.
Quantity of information is of little value without quality. Out of date can leave you out of pocket. If the information is out of date it can be worthless - latency introduces huge risk of its own and to be effective, limit information and the impact of trading across the board has to be real-time.
There’s no point in having access to such information if it isn’t usable. Traders don’t want to be inundated with unnecessary information. The trader’s view should be drawn to the most critical information. Moreover, that view has to be easily interpreted for the traders to make rapid decisions. A picture paints a thousand words - colour-coding and graphic presentation of key information make the trader’s decision-making much easier.
Timely feedback is critical - the ability for a trader to see the impact of a trade before it is done is key, otherwise you risk ‘shutting the stable door after the horse has bolted’.
Accountability and traceability must not be overlooked. Only authorised traders should be able to sanction limit breaches and all breaches should be logged for the record and strictly audited at regular intervals.
The challenge to IT in organisations is how to support business demands with the introduction of complementary solutions with seamless integration. Information has to be two-way, real-time and positioned within the infrastructure to facilitate efficient workflows and optimised STP.
All limit information in Siena is updated in real-time to reflect both trading across the system and any imported limits. Limits are checked pre-deal, enabling the trader to see the impact of a trade before committing to it.
- The limit with the lowest availability is highlighted in a dedicated panel, with colour coding to indicate clearly either where a limit will be breached or the proportion of a limit which has been utilised.
- A separate panel showing information on all the limits affected by the trade can be shown on demand.
- To help traders, limit information is revalued to be denominated in the dealt currency of the deal being entered.
- Using its CIF interface, Siena can listen to conversations on Reuter Dealing to display relevant limit information in the Siena deal entry window automatically.
- Limits can be monitored at a variety of levels including counterparties, groups of counterparties, countries, products, traders, trading books plus some combinations.
- Across those levels, the system supports a wide range of limit including aggregate, settlement, max term, LER, Daylight Spot, Overnight Spot, interest rate and stop loss limits.
- Only authorised traders can enter trades that breach a limit. Limit breaches are written to a viewable system event log, including full details on the limit and who entered the trade. Any user can opt to configure his event log to be alerted when limit breaches occur.
- Siena limits are backed by a suite of reports that covers all the classes of limit supported.
With the Siena Front Office limit support, you can cover all the bases and protect yourself from getting burnt.