Effective Product Control: Controlling for Trading Desks

ISBN-13: 9781118939819 / Angielski / Twarda / 2017 / 376 str.

Peter Nash

Opis

Improve financial product control operations with this comprehensive reference Effective Product Control provides detailed "how-to" guidance for the product control function, serving as a control standards primary reference for both internal and external stakeholders. Coverage includes tasks, roles, and functions, presented in an accessible way for introductory readers, while also offering best practice and improvement examples for the seasoned professional. Readers will learn how to handle risk exposure, exception reports, PNL, and more, and better grasp the relevant regulation, compliance rules, and standards. Key touch points include risk management, audit, accounting, treasury, trading and product sales, along with an examination of taxation and regulatory interaction including SOX, control review, valuations, and liquidity levels. Teaching and student ancillary materials include lecture slides, case studies, questions and answers, and functional documents that facilitate fundamental understanding. Product control within financial services organizations monitors trades, trade patterns, and entire portfolios to assess the remits and risks being taken, acting as the primary conduit between the trading desk and risk management, accounting, auditing, and financial functions. This book gives readers a foundation in product control, with detailed guidance toward every aspect of the function.

• Gain a deeper understanding of common product controller tasks
• Structure an effective and efficient product control function
• Carry out audit and regulatory review more effectively
• Understand product control's role within the financial institution

Product controllers' primary responsibility is to ensure that traders operate within their assigned remits, and mark their books to market prices. The practice is crucial, but often poorly understood. For product control staff looking to enhance their skills and improve operational processes, Effective Product Control is the complete guide to the function.

Spis treści

Preface xiiiAcknowledgements xvAbout the Author xviiPART ONE Working in Product ControlCHAPTER 1 An Introduction to Product Control 3The Emergence of Product Control 3The Purpose of Product Control 3Different Types of Product Control 5Skills, Qualifications and Experience 6Organizational Structure 8The Desk 10CHAPTER 2 Changing Landscape of Product Control 15Offshoring 15XVA 19Greater Levels of Capital 19Greater Focus on Liquidity 20Notes 21CHAPTER 3 Key Stakeholders 23Front Office: Sales and Trading Desk 23Chief Operating Officers (COOs) 25Operations 26Middle Office 27Market Risk 28Financial Reporting 29Management Reporting 29Finance Change 30IT 30Operational Risk 32Regulatory Reporting 32Accounting Policy 34Tax 34Audit 36Finance Shared Service 37Summary 37Notes 37PART TWO Technical SkillsCHAPTER 4 Accounting Standards: Recognition and Measurement 41IAS 39 Financial Instruments: Recognition and Measurement 42IFRS 9: Financial Instruments 60IFRS 13: Fair Value Measurement 66Notes 71CHAPTER 5 Market Risk 75What Is Market Risk and How Is It Generated? 75How Is Market Risk Measured by a Bank? 77Note 85CHAPTER 6 Pricing Financial Instruments 87How to Approach the Pricing of a Financial Instrument 87Pricing Examples 89Notes 105CHAPTER 7 Internal Control 107What Is Internal Control? 107Establishing an Internal Control Framework 110Example of Front to Back Internal Controls 117Notes 122PART THREE Profit and Loss ControlsCHAPTER 8 System Feeds, End of Day Rates and Profit and Loss Estimates 127System Feeds 127End of Day 129End of Day Rates 130P&L Estimate 135Note 136CHAPTER 9 Review of New and Amended Trades 137New Trades 137Amended Trades 152Notes 164CHAPTER 10 Review of Mark-to-Market P&L 165Defining Mark-to-Market P&L 165Attributing MTM P&L 166Risk-Based P&L Estimates 170Changes in the End of Day Prices 173When to Validate the MTM P&L 176CHAPTER 11 Funding, Fees and Charges 177Funding 177Fees and Charges 185Note 187CHAPTER 12 Profit and Loss Adjustments 189The Need for P&L Adjustments 189Controlling P&L Adjustments 190Notes 194CHAPTER 13 Profit and Loss Commentary 195Who Is the Reader? 198When Is P&L Commentary Required? 198CHAPTER 14 Profit and Loss Reconciliations and Sign-Offs 201Flash vs. Actual 201Desk P&L Sign-off 203P&L Reconciliation 205PART FOURValuationsCHAPTER 15 Independent Price Verification 209Components to IPV Process 210Note 224CHAPTER 16 Valuation Adjustments 225Why Valuation Adjustments Are Required 225Bid-Offer 225Day 1 Reserves 234Model Valuation Adjustment 234XVA and Collateral Agreements 235Recording and Reporting of VAs 239Notes 239PART FIVE Balance Sheet ControlsCHAPTER 17 Balance Sheet Substantiation and Analysis 243Substantiating the Balance Sheet 243Frequency of the Balance Sheet Substantiation 248Evidencing the Balance Sheet Substantiation 249Unsupported Balances 249Lines of Responsibility 255CHAPTER 18 Dividending of Profit and Loss and FX Selldown 257CHAPTER 19 Controlling Nostros 261Introduction to Nostros 261Controlling Nostros - Cash Breaks 262Risk-Weighting Cash and AVE breaks 266Provisioning for Nostro and AVE Breaks 267Notes 268PART SIX Financial Accounting and ReportingCHAPTER 20 Financial Accounting Entries 271Financial Accounting Entries 271Chart of Accounts 284Accounting Rules Engine 286Notes 289CHAPTER 21 Financial Reporting and Note Disclosures 291Context of Financial Reporting 291Profit and Loss 293Balance Sheet 295Netting 297Fair Value Hierarchy 304Notes 309PART SEVEN Supplementary ControlsCHAPTER 22 New Product Proposals 313Starting Line 313The Review 314The Sign-Off 319CHAPTER 23 Rogue Trading 321The Forefathers of Rogue Trading 321The Fallout from Rogue Trading - The Bank 323The Fallout from Rogue Trading - The Industry 325Going Rogue 325UBS Rogue Trading Incident, 2011 327Notes 343Index 347

O autorze

PETER NASH is a qualified accountant who has spent almost two decades controlling a wide range of sales and trading desks in Investment and Commercial banks. He is currently a Director of FINSED (www.finsed.com), a financial services training and consulting firm specialising in product control.

Blurb

Praise for Effective Product Control

"Essential reading for those working in or with product control and anyone with an interest in banking and finance. The only book of its kind, well–written, easy to follow and packed full of practical examples."
—Keith Young, Product Control (Senior VP)

"Peter has produced an invaluable reference tool for any product controller starting out in their career (and provides great nuggets of pertinent information for more experienced controllers too). I wish this book existed when I was starting out."
—Daniel Pass, Head of Valuation Control

"Essential reading for a successful career in product control. This is an excellent overview of a product controller′s work as it looks at the role from an end–to–end perspective. It is a valuable resource for people aspiring to be product controllers and those who have been in the industry for a few years. If you work in a third–party organisation and don′t understand the overall controls framework, this is the book for you."
—Fahad Parvez, Product Control (Senior AVP)

" As a Chartered Accountant with over 10 years′ experience in financial services and product control, I found this book to be very well–written and would recommend it to anyone interested in a career in banking or wanting a greater understanding of how banks implement control and report P&L."
—Michael Fraser, Chartered Accountant

The First Authoritative Guide for Product Controllers Globally

In the 1990′s, with increasing volumes of trading, a greater pool of financial instruments and higher levels of complexity, it was necessary for banks to establish a dedicated function within finance to control evolving sales and trading desks. With that, management accountants morphed and grew into a function called Product Control, which came to dominate large swathes of finance, establishing footprints all over the developed world and later on, developing nations.

Effective Product Control is a detailed how–to guide for those entering the profession, auditors and regulators who review product control and established controllers wanting a refresher on the latest skills and core controls within the industry.

Created by a leading expert in the field as a tool to lead and train teams in large banking organisations, this compendium of cornerstone knowledge and up–to–date best practices will enhance your skills and understanding of product control.