Listing of Principles :
3 Risk measurement, reporting & control
3.1 Market risk measurement
Principle no. 14: Valuation
All positions should be independently valued at fair value using approved policies and procedures at daily/weekly or other regular intervals, as appropriate, depending on their volume, complexity and risk profile.
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Principle no. 15: Risk decomposition
Market risk components inherent in any product should be identified to provide a basis for ensuring that market risk measurement is accurate.
3.2 Credit risk measurement
Principle no. 16: Netting
Companies should net credit exposures only where supported by the appropriate legal netting agreements.
Principle no. 17: Creditworthiness
The executive committee should be responsible for the evaluation of customer and counterparty creditworthiness and the setting of individual credit limits.
Principle no. 18: Settlement risk measurement
Settlement risk exposure should be measured in addition to pre-settlement risk and compared to separate settlement risk limits for individual counterparties on a daily basis
3.3 Liquidity risk measurement
Principle no. 19: Cash management
Short-term projected cash flows for each currency should be measured and monitored in order to anticipate future funding requirements.
Principle no. 20: Funding strategies
Alternative strategies to meet liquidity needs arising from either a loss of market liquidity or market access should be incorporated into the companyís contingency liquidity planning process.
Principle no. 21: Liquidity assurance and compliance reporting
Assuring the liquidity of the company by whatever means available should be the first priority of treasury. However in the event where a liquidity crisis becomes likely it is the duty of the Treasurer to immediately notify the board officially of the situation.
3.4 Risk monitoring & aggregation
Principle no. 22: Risk consolidation and monitoring
Market, credit and liquidity risks should be aggregated on a company-wide basis and monitored against company-wide guidelines or limits on a daily basis, with regular reporting on any risk, limit or guideline breaches.
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Principle no. 23: Limit review procedures
Risk limits should be re-examined in connection with market conditions and any changes in trading strategy.
Principle no. 24: New product evaluation and authorisation
A formal process should be established for new product trading which details the rationale for the use of the product, alterations required to existing policy documents, a valuation process, a list of potential counterparties and assurances that adequate controls and procedures, systems and risk analysis techniques are in place.
