Limit Setting and Control
capQORT allows limit setting and control in accordance with regulatory requirements, investment declarations, and internal requirements of asset management companies.
capQORT is supplemented with a system which provides effective risk management of portfolios. For this purpose, it is possible to select assets by a number of parameters and group them with further price control by their absolute value or share in the portfolio’s current net asset value.
capQORT provides the following ways to define groups of instruments which require operation control:
- Enumeration of instruments in explicit form
- Instrument selection by the following criteria:
- instrument types
- issuers and underwriters
- industries (multilevel structure)
- agency ratings (international, sovereign)
- state registration codes, CFI
- inclusion in indexes
- additional features (liquidity, securities for qualified investors, inclusion in quotation lists, inclusion in the Bank of Russia Lombard list)
- period before redemption/offer
- fundamental issuer indicators (issuer’s own capital, own pre-tax income, EBIDTA)
- any discretionary classification
- Combining different instrument groups in analytical groups by specifying integration or intersection of sets
It is possible to control limits in the system by a current or planned position. There is an additional possibility to control positions for intermediate dates that allows tracing increase in available cash on specified dates to place it in short-term instruments.
The following limit types are used to control that portfolio parameters conform to investment declarations:
- limits on portfolio structure (including open positions by REPO trades, an asset share relative to the average monthly inflow/outflow of funds, etc.)
- limits on orders (an interval of allowed price deviation from the market one, the maximum order volume)
- limits on counterparties
- limits on deviation of the portfolio structure from the model one
- limits on duration (control of the average portfolio duration, the maximum duration of each bond included in the portfolio)
- limits on DFI position
- lasting limits
Limits can be grouped and applied to a portfolio or portfolio groups. Limit violations are recorded in the directory containing reports on the deviation value, elements of violation, and breach elimination. Besides that, in case of limit violations, alerts are sent by e-mail or via the capQORT terminal.
Not only existing limits but also an external risk system can be used as a control solution.
The system allows testing created limits on existing portfolios before their activation.
There are test orders to test current restrictions of the main system. Such orders do not change the position but are taken into account in pre-trade restriction control of the user that forwarded the test order.
Modes of Limit Control
When forwarding orders via the capQORT terminal restrictions can be used:
- for Pre-trade control (checks before order forwarding)
In this case, the following operation modes are available:
- Informing — in case of limit violations, orders are sent to execution brokers. Also, notifications are generated and sent to duly authorized staff of the asset management company
- Requiring a confirmation — in case of limit violations, orders are sent to execution brokers only after they are confirmed by a duly authorized staff member of the asset management company
- Blocking — in case of limit violations, orders cannot be sent to the trading system for their execution
- for Post-trade control
In this case, the check on limit violations is made by the current or planned portfolio state. Notifications are generated and sent in case of violations detected during the check. The system keeps records of limit violations and operations causing these violations.
- for End-of-day control
In this case, lasting limits are used making it possible to analyze statistical portfolio deviations from specified parameters over a period of time (for example, a number of days over a period closed with a stock share exceeding a specified parameter in the portfolio).
Active and violated restrictions in a portfolio and groups of portfolios are displayed in the Portfolio Organizer.
The system has an option to prohibit buying or selling specified groups of instruments. Besides that, it is possible to set limits on execution of market orders in order to avoid a significant influence on the assets’ prices.