Spot Market Risk Management

Many risk management tasks can be automated when managing own and client positions. Most of the tasks relate to calculation and control of margin indicators and to limit management. The QORT platform processes information in an online mode and allows combining risk management and accounting own and clients’ operations in one product. The Spot Market Risk Management module is responsible for risk management on stock and FX markets.

Risk Management of Client Positions

Main Tasks in Client Operations

  • Calculation and projection of margin indicators.
  • Order generation for rolling over positions.
  • Order generation for forced position closure.
  • Limit management.
  • Keeping registry of high-risk clients.

  1. Calculation and projection of margin indicators

    The Module calculates such margin indicators as volume of collateral, debt, own funds, evaluation of short and long positions, margin level, level of funds adequacy, initial margin and other indicators in accordance with the margin lending scheme chosen for the client. The indicators are calculated online.

    For every trade, the Module allows making automatic recording of features of margin and unsecured trades, of the main indicators’ state before and after operations.

    A special calculator allows calculating future margin indicators for planned trades or operations for funds depositing or withdrawal. The calculator also helps in solving an opposite task – calculating operation parameters to adjust margin indicators to determined figures. The parameters are calculated with account of commissions that will be written off for previously executed operations, and preset ‘RCV1’ and ‘RCV2’ levels.

    It is possible to recalculate margin indicators at the end of the trading day and after changes in operations, including projected changes in the broker’s own discounts.

  2. Two calculation schemes for margin indicators
    • A ‘Discount’ margin lending scheme is a scheme when a broker specifies discounts independently for each instrument. Then, initial and minimum portfolio margins are calculated with the discounts and compared to the current portfolio value (‘RCV1’ and ‘RCV2’ indicators). The Module allows controlling risk parameters of the portfolio which includes both spot market assets and derivative contracts in accordance with requirements of the Bank of Russia Ordinance № 4928-U* dated October 10, 2018.

      To calculate risk parameters, the system allows importing from QUIK discounts and varieties of instruments with dependent prices or their setting.

      *For full risk management of derivatives market instruments, the Derivatives Market Risk Management module is required.

    • A ‘leverage’ scheme, wherein each client is provided with a margin credit in a defined ratio to the client's own funds.

    The Module allows automating full cycle of risk management for client operations on stock and FX markets when clients are provided with margin lending.

  3. Rolling over long and short positions

    The Module allows rolling over long and short positions to the next day with the help of the following exchange operations:

    • REPO trades,
    • REPO trades with CCP,
    • NDM trades with CCP,
    • SWAP trades (to roll over currency positions).

    Upon the user’s request, the system generates orders for rolling over positions and uploads them to QUIK. It is possible to generate addressed REPO orders for rolling over short positions from a file. Positions can be rolled over by registration of REPO trades of the OTC market in QORT via the user’s terminal. If the broker uses NCC discounts, the Module allows their use in evaluation of orders for rolling over positions. Moreover, the list of collateral securities is imported from QUIK.

    Analysis of funds shortage is available when rolling over positions. The table shows assets with not fully generated roll over orders.

  1. Sending margin calls

    The system allows monitoring the portfolio state and sending notifications if the portfolio value decreases/increases the monitored value. Notifications are automatically generated and sent by e-mail.

    If the portfolio value goes lower than the minimum margin (‘RCV2’ is below zero), the system automatically sends margin requirements (margin call) to clients by e-mail or via QUIK notifications. The system of notification templates makes it possible to adjust notification texts.

  2. Forced position closure

    The Module automatically generates orders for forced position closure updating their parameters online. When generating the orders, preset ‘RCV1’ and ‘RCV2’ levels are taken into account. A risk manager decides on forced position closure. The Module allows forwarding orders for forced position closure in a certain sequence or depending on the position number or volume. The Module allows setting various rules for forced margin position closure for a particular account or a group of accounts:

    • closure of all short positions,
    • closure of positions until a specified level of funds adequacy or a preset ‘RCV1’/‘RCV2’ is reached,
    • closure of positions to the level of an initial margin increased by a specified value.
  3. Limits in QUIK

    Before a trading session, the system allows generating, downloading and adjusting limits for securities and cash in the QUIK trading system. It also allows setting a ‘leverage’ volume for margin lending. Further corrections with account of all trades and OTC operations can be made either as needed or online.

  4. Reporting

    The Module generates data for registers of margin and unsecured trades and automates keeping registries of high-risk clients, stores copies, and keeps a directory of sent notifications.

Risk Management of Own Positions

For own position risk management, the Module allows users to work with various types of internal limits. Internal limits are set and monitored in QORT without uploading them to front-office systems.

Main Types of Internal Limits

  • The limit on size of an open position in instruments of a specified issuer.
  • The limit on size of an open position by a group of instruments.
  • The limit on open position for a counterparty with separate control of counterparty’s liabilities, own liabilities to the counterparty or their balance.
  • The limit on REPO position opened against the counterparty.
  • The limit on uncalculated FX liabilities.
  • The limit on banknote operations.

In addition, it is possible to set loss limits. This limit type can be set both for a group of assets and for any asset separately.

All limits described above are monitored in a post-trade mode. For limits on open position size in issuer instruments and on open position for the counterparty, pre-trade control is also available when OTC trades are registered in QORT.

The Module allows rolling over own positions similarly to rolling over client positions.

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