Specific operational risks
The use of derivatives creates some specific risks associated with key
functions. These are listed below and anyone working in a derivatives
team must understand them.
Trade input
Source of trade data (i.e., manual or automated);
• Deal ticket processing
– Confirmations (OTC)
• Format considerations in terms of clarity of information
• Volume fluctuation
• Peaks and troughs, influenced by issues like economic announce-
ments, etc.
• Timely and accurate allocation of trade or account bookings.
Valuation
• Sources of prices
• Input method-manual/automatic
• Validation of prices
• Generation of profit/loss figures
• Valuing collateral.
Reconciliation
• Positions
• Confirmations (OTC)
• Intra-day
• End of Day
• Trade day 1
• Initial margin
• Variation margin
• Option premium
• Cash position/ledger balance
• Value-dated payments and receipts
• Nostro/bank reconciliations
• Profit/loss account
• Collateral.
Operational risk 161
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