Effective product control : controlling for trading desks

349 Pages·2018·7.508 MB·English

by  Nash, Peter

Effective
Product
Control
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Effective
Product
Control
Controlling for Trading Desks
PETER NASH
Thiseditionfirstpublished2018
©2018PeterNash
Registeredoffice
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UnitedKingdom
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LibraryofCongressCataloging-in-PublicationData
Names:Nash,Peter,author.
Title:Effectiveproductcontrol:controllingfortradingdesks/byPeterNash.
Description:Chichester,WestSussex,UnitedKingdom:JohnWiley&Sons,2018.|Includesindex.|
Identifiers:LCCN2017029434(print)|LCCN2017040992(ebook)|ISBN9781118939796(Pdf)|
ISBN9781118939802(epub)|ISBN9781118939819(cloth)
Subjects:LCSH:Financialinstitutions—Riskmanagement.|Financialservicesindustry—
Riskmanagement.|Portfoliomanagement.|Stocks.|Investments.
Classification:LCCHG173(ebook)|LCCHG173.N272018(print)|DDC332.1068/1—dc23
LCrecordavailableathttps://lccn.loc.gov/2017029434
AcataloguerecordforthisbookisavailablefromtheBritishLibrary.
ISBN978-1-118-93981-9(hardback) ISBN978-1-118-93979-6(ePDF)
ISBN978-1-118-93980-2(ePub) ISBN978-1-118-93978-9(obk)
10 9 8 7 6 5 4 3 2 1
Coverdesign:Wiley
Coverimage:Top:©Shai_Halud/Shutterstock,Bottom:©InozemtsevKonstantin/Shutterstock
Setin10/12ptTimesbyAptaraInc.,NewDelhi,India
PrintedinGreatBritainbyTJInternationalLtd,Padstow,Cornwall,UK
Idedicatethisbooktomyfamily,especiallymychildren,whohave
forgoneagreatdealofDadtimeforthisbooktocometolife.
ToPhoebe,XaniandMatilda.
Thankyou.
InmemoryofPatrickSpratt,aproductcontrollerandfriend
whowaslargerthanlife.
Contents
Preface xiii
Acknowledgements xv
AbouttheAuthor xvii
PARTONE
WorkinginProductControl
CHAPTER1
AnIntroductiontoProductControl 3
TheEmergenceofProductControl 3
ThePurposeofProductControl 3
DifferentTypesofProductControl 5
Skills,QualificationsandExperience 6
OrganizationalStructure 8
TheDesk 10
CHAPTER2
ChangingLandscapeofProductControl 15
Offshoring 15
XVA 19
GreaterLevelsofCapital 19
GreaterFocusonLiquidity 20
Notes 21
CHAPTER3
KeyStakeholders 23
FrontOffice:SalesandTradingDesk 23
ChiefOperatingOfficers(COOs) 25
Operations 26
MiddleOffice 27
MarketRisk 28
FinancialReporting 29
ManagementReporting 29
FinanceChange 30
vii
viii CONTENTS
IT 30
OperationalRisk 32
RegulatoryReporting 32
AccountingPolicy 34
Tax 34
Audit 36
FinanceSharedService 37
Summary 37
Notes 37
PARTTWO
TechnicalSkills
CHAPTER4
AccountingStandards:RecognitionandMeasurement 41
IAS39FinancialInstruments:RecognitionandMeasurement 42
IFRS9:FinancialInstruments 60
IFRS13:FairValueMeasurement 66
Notes 71
CHAPTER5
MarketRisk 75
WhatIsMarketRiskandHowIsItGenerated? 75
HowIsMarketRiskMeasuredbyaBank? 77
Note 85
CHAPTER6
PricingFinancialInstruments 87
HowtoApproachthePricingofaFinancialInstrument 87
PricingExamples 89
Notes 105
CHAPTER7
InternalControl 107
WhatIsInternalControl? 107
EstablishinganInternalControlFramework 110
ExampleofFronttoBackInternalControls 117
Notes 122
PARTTHREE
ProfitandLossControls
CHAPTER8
SystemFeeds,EndofDayRatesandProfitandLossEstimates 127
SystemFeeds 127
EndofDay 129
EndofDayRates 130
Contents ix
P&LEstimate 135
Note 136
CHAPTER9
ReviewofNewandAmendedTrades 137
NewTrades 137
AmendedTrades 152
Notes 164
CHAPTER10
ReviewofMark-to-MarketP&L 165
DefiningMark-to-MarketP&L 165
AttributingMTMP&L 166
Risk-BasedP&LEstimates 170
ChangesintheEndofDayPrices 173
WhentoValidatetheMTMP&L 176
CHAPTER11
Funding,FeesandCharges 177
Funding 177
FeesandCharges 185
Note 187
CHAPTER12
ProfitandLossAdjustments 189
TheNeedforP&LAdjustments 189
ControllingP&LAdjustments 190
Notes 194
CHAPTER13
ProfitandLossCommentary 195
WhoIstheReader? 198
WhenIsP&LCommentaryRequired? 198
CHAPTER14
ProfitandLossReconciliationsandSign-Offs 201
Flashvs.Actual 201
DeskP&LSign-off 203
P&LReconciliation 205
PARTFOUR
Valuations
CHAPTER15
IndependentPriceVerification 209
ComponentstoIPVProcess 210
Note 224
x CONTENTS
CHAPTER16
ValuationAdjustments 225
WhyValuationAdjustmentsAreRequired 225
Bid–Offer 225
Day1Reserves 234
ModelValuationAdjustment 234
XVAandCollateralAgreements 235
RecordingandReportingofVAs 239
Notes 239
PARTFIVE
BalanceSheetControls
CHAPTER17
BalanceSheetSubstantiationandAnalysis 243
SubstantiatingtheBalanceSheet 243
FrequencyoftheBalanceSheetSubstantiation 248
EvidencingtheBalanceSheetSubstantiation 249
UnsupportedBalances 249
LinesofResponsibility 255
CHAPTER18
DividendingofProfitandLossandFXSelldown 257
CHAPTER19
ControllingNostros 261
IntroductiontoNostros 261
ControllingNostros–CashBreaks 262
Risk-WeightingCashandAVEbreaks 266
ProvisioningforNostroandAVEBreaks 267
Notes 268
PARTSIX
FinancialAccountingandReporting
CHAPTER20
FinancialAccountingEntries 271
FinancialAccountingEntries 271
ChartofAccounts 284
AccountingRulesEngine 286
Notes 289
CHAPTER21
FinancialReportingandNoteDisclosures 291
ContextofFinancialReporting 291
ProfitandLoss 293
Contents xi
BalanceSheet 295
Netting 297
FairValueHierarchy 304
Notes 309
PARTSEVEN
SupplementaryControls
CHAPTER22
NewProductProposals 313
StartingLine 313
TheReview 314
TheSign-Off 319
CHAPTER23
RogueTrading 321
TheForefathersofRogueTrading 321
TheFalloutfromRogueTrading–TheBank 323
TheFalloutfromRogueTrading–TheIndustry 325
GoingRogue 325
UBSRogueTradingIncident,2011 327
Notes 343
Index 347