Volume 2 — Governance and ControlsGovernance and Controls © Copyright 2002, All rights reserved 31 Key Reports • Contract. • List of approved counterparties. • Contract summary report. 1.3 Risk Management 1.3.1 Daily Risk Monitoring Process Overview Each day the middle office ensures that positions are captured accurately and risks monitored. This process begins with a review of the daily risk reports to assess the activity from the previous trading day, continues throughout the day with monitoring positions, and concludes with a daily close-of-business lockdown to close system activity and prepare the risk reports for processing. Objectives • Ensure that positions are captured accurately and market risk can be continuously monitored. • Support the best practice of segregation of duties and risk control. Best Practices and Controls • Each morning, the middle office should verify that all overnight risk reports were generated and review the reports for completeness, outliers, and limit violations. (Companies often start the calculation and report generation process the evening before.) • Limit violations should be communicated to the head of trading and the CRO. • The middle office must ensure that actions are taken to become compliant with defined limits. • Throughout the day, the system should maintain real-time positions by commodity, pricing point, and time period. • Positions should be recorded in trading books and aggregated at the business unit and corporate levels. • Limit exposures should be monitored in real time as trading activity and curves are updated in the system. • Limit violation notifications should be sent to management throughout the day. • At the close of each day’s business, the middle office should perform a lockdown, validating the updated curves and trades, “locking down” the system, and rolling the system date forward. The middle office should then initiate the close-of-business risk report run (including positions, MTM, P&L, and VaR).