Our group provides specialised trading risk global support to major investment banks, energy trading firms and investment and asset managers – addressing trading risks primarily relating to:
- Unauthorised and rogue trading
- Market abuse and rate manipulation
- Front office conduct and cultural issues
- Regulatory interpretation and response
- Operational risk and control frameworks
- Electronic - program trading risk and controls
We work closely with clients to address the big trading risk issues facing today’s trading firms, providing innovative solutions to tackle fraud, misconduct, manipulation and other topics.
Trading risk - risk environment
Unauthorised trading incidents occur annually within most banks with the current annual cost estimate (when trading loss, fines, remediation, business curtailment and reputational damage costs are factored) now well in excess of $100 million for a typical client firm each year.
Market and rate manipulation in the FX sector is a major trading risk concern for banks, with continuing London Interbank Offered Rate (LIBOR) issues far from resolved. Other markets including energy, metals and commodities are also at risk and may be scrutinised far more closely by regulatory authorities as concerns grow in the financial markets and comparisons are increasingly drawn.
Many energy trading firms are seeing strong growth in hedging and trading activity. The financial magnitude and complexity of most energy trades, steady rise in energy prices over the past decade and inherent challenges posed by operating in jurisdictions with varying degrees of law and order, exacerbate the risks associated with this operation.
Recent trading risk misconduct relating to the ‘winding down’ of SAC Capital in the US highlight the risks associated with the operation of large investment management firms.
Whilst electronic and program trading has been a key driver of global trading volumes over the past decade so the associated trading risks have also grown significantly. Knight Capital’s $450 million (intraday) loss caused by a misfiring algorithm in 2012, and recent ‘program trading errors’ within the options division of Goldman Sachs highlight the growing trading risks across e-trading operations.
Our group includes a specialist e-trading risk and controls division, where we help ensure ‘new world’ fraud and misconduct threats are properly understood and managed.
Many of our clients find themselves under more pressure than ever before to mitigate trading/trader risks whilst the threat of jail now looms large for senior executives who fail to meet minimum standards in risk management.
Group core services provided include:
- Assessments, risk and solution enlightenment
- Benchmarking and peer analysis
- Business case and cost benefit reports
- Project/program planning/resourcing, governance
- Technology fitting and system configuration
- Data aggregation and analysis
- Implementation and delivery
- Risk framework design
- Front office supervision and controls
- Holistic monitoring
- Electronic and program trading risk and controls advisory
- Regulatory oversight and relationship management
Related services include: