Thread by @SAH16928046

How does a middle office risk management job differ from a risk management job on the trading floor?
@garp @PRMIA @actuarynews @SOActuaries @irmglobal

TMO - Treasury Middle Office roles differ from bank to bank.
In other non-banking financial institutions, MO roles may vary according to portfolio size and responsibilities handed over to the risk management team.

MO is primarily responsible for overseeing trading (front office) activities and applying controls, and reporting violations thereof.

Some MO roles may also envisage giving the risk managers the right to execute stop-loss transactions and apply hedging techniques using financial derivatives to reduce or transfer financial risks.

But usually large commercial /retail banks have middle offices to control inter-bank currency and money market / fixed income activities conducted by desk dealers on the trading floor aka treasury department.

In addition to this MO Managers, and their team may also oversee trading books risks which include market risk, liquidity risks, credit risk in the trading portfolio, and valuation /revaluation risks which might affect profitability - KPIs.

At some big banks, MO also prepares BASEL II /III Compliance Reports and compute capital adequacy charges concerning the Treasury Departments Exposures.

Summarizing =>
•The MO acts as an intermediary Monitoring Post between the FO and the BO. The Middle office only identifies, measures and manages and monitors in real-time the risk of trading book transactions and the other treasury portfolio exposures that fall

within its control and risk assessment mandate. The #MO might also give its input on ALRM - Asset Liability Risk Management to the #ALCO - Asset Liability Committee or the BRMC - Board Risk Management Committee.

•The Front Office is the risk-taker, conducting arbitrage operations and transactions across markets and time zones.

The trading desk is the FO.

•Whereas the Back Office is the operations’ controller in regard to Materiality Misstatement Risk, out of the many responsibilities, some of which are done as part of the banking convention, usually includes daily P&L Accounts revaluation marking, position sizing

and limit utilization reports, limit breach reports, blotter reconciliation reports, exceptions reports, and transaction GLA Posting, deal ticker issuance, deal stamp monitoring, deal voice recording and other bookkeeping related documentation filing and archiving procedures.

•However, certain responsibilities may vary and overlap with that of the MO from bank to bank.

Capital Market Division/s which buy and sell listed and unlisted corporate bonds, and listed equities aka common shares issued by companies, might have a middle office desk of their own.

•FRONT OFFICE RISK MANAGEMENT is a different concept.

•FO RISK MGMT. is done sitting next to a dealer’s desk on the trading floor/dealing room. It is for controlling risks emanating from high-risk dealing operations and/or other trading book investments.

It is usually done at Pension Funds, Quantitative Funds, Investment Banks, Hedge Funds and other large asset management companies which manage high-risk transactions and are constantly hedging credit, market, liquidity and operational risks in a dynamic environment, in real-time.

#ALGO Trading and #HFT Global #Arbitrageurs might have a business model which would require dynamic hedging and highly responsive risk trading systems and controls, which can be best done by placing the risk controller right next to the dealer or the Chief Investment Officer.

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