Volume 2 — Governance and ControlsGovernance and Controls © Copyright 2002, All rights reserved 19 1.1.2 Trading, Contracts, and Asset Management Process Overview At the start of the trading day, the front office should evaluate all open trading contracts and asset positions and review daily risk and credit reports. A daily meeting should be held to discuss market events, and determine the day’s trading strategies. Different groups within the front office may be responsible for executing different deal types, such as standard deals or complex deals that require structuring or long-term obligations. For the purposes of this document, this section covers standard deals. (See Section II-1.1.3 Origination, Structuring, and Pricing section for the processes for complex deals.) Before the deal is finalized, the front office verifies that a contract is in place, credit is sufficient, and the deal is within the trader’s authority and does not exceed any risk limits. Once all controls have been checked and both parties agree to the terms, the deal is finalized. Objectives • Add value to the portfolio through the execution of authorized transactions. • Mitigate risk through deal creation. • Manage positions as a combined set of deals, contracts, and assets to optimize the portfolio. • Satisfy customer needs. Best Practices and Controls • The front office should conduct a daily strategy meeting to share market information, review positions, and assess strategic direction. • When necessary, the middle office should aid in strategy development by providing stress-test results to the front office. • If the counterparty is new, credit approval and limits should be obtained. • Transactions should not be entered into with any counterparty until a valid contract has been executed and authorized by contract administration. • If credit is insufficient, the trader should help the credit department obtain the necessary credit enhancement before completing the deal. • The front office must follow appropriate procedures for obtaining exceptions for transactions that do not meet the authorized terms or limits. Key Reports • Price discovery reports (e.g., broker quotes, electronic trading platforms, data feeds). • Position report in total and by region, book, or trader. • P&L report in total and by region, book, or trader.