Volume 4— Credit Risk Management © Copyright 2002, CCRO. All rights reserved. 18 Exposure reporting and monitoring should cover all activities with a counterparty. At a minimum, accounts receivable, MTM, and accounts payable should be monitored on a daily basis. As a first step, companies should focus on implementing systems and processes that allow cost-free mitigation techniques, i.e., netting. Individual companies should assess the cost benefit associated with intraday monitoring. As a best practice, use of next-day counterparty and position information should be the minimum standard for monitoring credit risk. The following is a comprehensive list of sample reports to serve as a guide to best practice. Contract Database Integral to the success of credit risk mitigation is the ability to exercise contractual provisions in a timely manner. Several reports to consider in monitoring and maintaining the life cycle of the documentation process include: • Unexecuted/under negotiation/missing contracts and addendums by counterparty, product, business unit, commodity, contract type • Document exceptions aging, document pending aging, and expiring document reports • Inactive contracts (number, dollar amount) • Transaction exception report • Counterparties with netting/set-off rights • Listing of exceptions to minimum contract standards for key attributes The scanning of the actual executed contracts is an additional element of the contracts database that is necessary to manage credit risk in the most efficient manner. Margin Management The financial implications associated with margining require organizations to use a proactive approach to tracking and managing the various components of a collateral desk. • Collateral held by counterparty: relationship, type, and expiration • Active counterparties with collateral deficiency • Letter of credit inventory • Parent guarantee inventory • Payment/settlement, margin fails, and unsatisfied MAC demands Limits Management Once limits are established, it is necessary to monitor, on a regular basis, the position limits established for each counterparty. • Counterparty detail report: exposure, limit and collateral analysis
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