HSBC 2015 Annual Report Download - page 213

HSBC HOLDINGS PLC
211
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
Market risk in global businesses
The diagram below summarises the main business areas where trading and non-trading market risks reside and the market risk
measures used to monitor and limit exposures.
1 The interest rate risk on the fixed-rate securities issued by HSBC Holdings is not included in the Group VaR. The management of this risk is described on
page 171.
Where appropriate, we apply similar risk management policies and measurement techniques to both trading and non-trading
portfolios. Our objective is to manage and control market risk exposures in order to optimise return on risk while maintaining
a market profile consistent with our status as one of the world’s largest banking and financial services organisations.
The nature of the hedging and risk mitigation strategies performed across the Group corresponds to the market risk
management instruments available within each operating jurisdiction. These strategies range from the use of traditional
market instruments, such as interest rate swaps, to more sophisticated hedging strategies to address a combination of risk
factors arising at portfolio level.
Market risk governance
(Audited)
Market risk is managed and controlled through limits approved by the RMM for HSBC Holdings and our various global
businesses. These limits are allocated across business lines and to the Group’s legal entities.
The management of market risk is principally undertaken in GB&M, where 94% of the
total value at risk of HSBC (excluding insurance) and almost all trading VaR resides,
using risk limits approved by the GMB. VaR limits are set for portfolios, products and
risk types, with market liquidity being a primary factor in determining the level of
limits set.
Global Risk is responsible for setting market risk management policies and
measurement techniques. Each major operating entity has an independent market
risk management and control sub-function which is responsible for measuring market
risk exposures in accordance with the policies defined by Global Risk, and monitoring
and reporting these exposures against the prescribed limits on a daily basis. The
market risk limits are governed according to the framework illustrated to the left.
Each operating entity is required to assess the market risks arising on each product in
its business and to transfer them to either its local GB&M unit for management, or to
separate books managed under the supervision of the local ALCO.
Our aim is to ensure that all market risks are consolidated within operations that
have the necessary skills, tools, management and governance to manage them. In
certain cases where the market risks cannot be fully transferred, we identify the
effect of varying scenarios on valuations or on net interest income resulting from any
residual risk positions. Further details on the control and management process
for residual risks are provided on page 212.
Model risk is governed through Model Oversight Committees (‘MOC’s) at the regional and global Wholesale Credit and Market
Risk levels. They have direct oversight and approval responsibility for all traded risk models utilised for risk measurement and
management and stress testing. The MOCs prioritise the development of models, methodologies and practices used for traded
risk management within the Group and ensure that they remain within our risk appetite and business plans. The Markets
MOC reports into the Group MOC, which oversees all model risk types at Group level. Group MOC informs the RMM about
material issues at least on a bi-annual basis. The RMM is the Group’s ‘Designated Committee’ according to regulatory rules and
has delegated day-to-day governance of all traded risk models to the Markets MOC.
Our control of market risk in the trading and non-trading portfolios is based on a policy of restricting individual operations to
trading within a list of permissible instruments authorised for each site by Global Risk, of enforcing new product approval
Trading risk Non-trading risk
Risk types
– Foreign exchange and commodities
– Interest rates
– Credit spreads
– Equities
– Structural foreign exchange
– Interest rates
1
– Credit spreads
Risk measure
VaR |Sensitivity |Stress testing VaR |Sensitivity |Stress testing
Global businesses
GB&M, including BSM GB&M, incl BSM GPB CMB RBWM
Chairman/CEO
Risk Management Meeting
of the GMB
HSBC Holdings Board
Entity Risk
Management Committee
Principal Office Manager
Business/Desk/Trader
Group Traded Risk
General measuresSpecific measures