Risks
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| >Javier Sunderland Guerrero>President of Legal Finance Committee |
Risk Committee
In order to improve financial risk management by brokerage firms and mutual fund managers, a Risk Committee was formed on November 14, 2007, consisting of representatives from both types of institution. The aim of this committee is to share experiences and combine efforts to analyze and develop projects in the sphere of risk management for these institutions.
The Committee includes two sub-committees, one for brokerage firms and another for mutual fund managers.
The projects that will make up the committee's work plan can be grouped into three major categories:
- General projects:
- Representation before the authorities on matters of risk management.
- Disclosure of risk information.
- Definition of best practices.
- Brokerage firms:
- Market Risk:
Proposed rule on capitalization for market risk, through internal models
- Credit Risk
- Modification of the Haircuts table for collateralized Repos and securities lending
- Review of the methodology applied by the Risk Committee of the Central Securities Counterpart.
- Treatment of Credit Derivatives
- Participation in the OTC Derivatives Clearinghouse project.
- Trading Risk
- Introduction of capitalization rules on trading risk and credit risk (Basel II), when they apply
- Definition of a historic data base of trading losses and costs.
Other topics:
- Review Banco de Mexico's requirements for brokerage firms that intend to engage in derivatives trading (31 points).
- Mutual Funds:
- Information disclosure
- Content of Investment Risks section of information prospectuses for the investing public
- Definition of Value at Risk in information prospectuses for the investing public.
- Mention in the information prospectus of instances in which VaR parameters are exceeded.
- Certification:
- Review the content of the Guide on certification of personnel responsible for Comprehensive Risk Management.
In November and December 2007, the committee focused on the following projects:
Reviewing the Haircut table for Repo trades.
Members agreed on updates to the Haircut table for repo and securities lending transactions, which will be done by a price vendor engaged for that purpose in the year 2008. The reasons a price vendor was chosen for these updates were:
- It will not be depending on the views or interests of a group of brokerage firms.
- The price vendor has a data base of transactions that are executed on the market, and is responsible for updating it regularly.
- The table must be reviewed at least every six months.
Compliance Officers and Risk Management
Several meetings were held by a work group called to analyze the role of mutual fund manager compliance offers in the Strategic Plan for Comprehensive Risk Management, which these institutions had to deliver to the authorities by April 17, 2007. The group established that the Plan must cover the following areas: regulatory references, activities to be carried out, person(s) responsible, date of implementation, and duties of the Compliance Officer.
The group also addressed risk managers' concerns regarding certification requirements. At the end of 2007, the personnel of 22 mutual fund managers had passed the exam, and 20 of these had certified personnel. One important agreement that was reached was that the group would in 2008 review the content of the Certification Guide for the person responsible for Comprehensive Risk Management.
In addition to the preceding point, and in order to enhance the contribution that Compliance Officers make to the mutual fund managers, and to support them in the opinions they issue on the matter of Comprehensive Risk Management, the work group agreed to issue a self-regulatory rule obliging them to obtain certification. Accordingly, a Technical Council was formed to develop the content of the course that Compliance Officers must take in order to obtain such certification. The self-regulatory rule was approved by the Board of Directors on September 27.