Operations and Systems
Internal Operations
Front, middle and back office roles, and the daily work of trade processing, P&L, collateral, settlement and reporting.
Introductory3 pagesPractitioner7 pages
1Organization and Roles
Quiz for this chapterQuiz: Organization and Roles2Daily Operations
- IntroductoryTrade Capture and ApprovalA unit other than the one that did the trade checks the entry, errors are corrected, and checked trades are passed on for reconciliation with the counterparty.
- PractitionerLifecycle Event ProcessingA lifecycle event determines whether a trade continues, ends, or is replaced by another trade.
- PractitionerDaily Valuation and P&L Sign-OffErrors and fraud could hide in P&L that traders set themselves, so a unit that does not trade checks the front office's figures.
- PractitionerDaily Risk Management OperationsFor the risk management department to act as a check on the front office, the work of measuring risk and preparing reports must be independent of the front office.
- PractitionerCollateral OperationsThresholds, minimum transfer amounts, eligible collateral and haircuts, and the interest rate on cash collateral differ from agreement to agreement, so the daily calculation uses the terms agreed with each counterparty.
- IntroductorySettlementIf settlement does not happen as planned, a financial institution can lose funds it expected to receive or have to raise replacement funds in a hurry.
3Accounting, Reporting and Audit
- PractitionerRegulatory ReportingTrade information is sent to a trade repository trade by trade, while capital ratios and the state of risks are sent to the authorities at set times.
- PractitionerAccounting OperationsTransactions are entered in the ledger, supported by copies of the trade agreement, and updated on each settlement date and each revaluation.
- PractitionerResponding to Audits and ExaminationsA financial institution undergoes internal audit, external audit by an audit firm, the Financial Services Agency's inspections, and the Bank of Japan's examinations as separate audits, each with a different party and basis.