CRMPG calls for daily counterparty risk reports

Broker-dealers should monitor their institutional counterparty risk exposure on a daily basis, the latest report from the Counterparty Risk Management Policy Group (CRMPG) has recommended.

It its third report, the CRMPG - a working group of broker-dealers, hedge funds, private equity firms and law firms – lists ways for institutions to strengthen their resilience to financial shocks and bolster their risk-monitoring capabilities, related to but independent of similar changes recently mandated by national regulators and international supervisors.

The group recommends the complete capture of end-of-day counterparty exposures, and says banks should be able to collect detailed and accurate estimates of market and credit risk exposure data across all counterparties “within a matter of hours”.

The report, entitled Containing systemic risk: The road to reform, largely reiterates previous guidance firms have received on how to better manage their internal and counterparty risk exposures from the Financial Stability Forum, the President’s Working Group on Financial Services and other supervisors.

The CRMPG focuses on the internal changes individual firms can make to better capture their risk exposure, and changes that can be made to the financial markets as a whole to limit risk. These include long-standing proposals such as the establishment of a central settlement platform for both credit derivatives and other over-the-counter trades, as well as more ambitious plans such as the creation of an industry-wide process for resolving margin valuation disputes, particularly around illiquid products, by the end of 2009.

The report also recommended the International Swaps and Derivatives Association (Isda) update its definition of credit derivatives to take into account the advent over the past three years of Isda-sponsored auctions to establish a price for deliverable obligations.

See also: Regulators push for operations changes

FSF calls for rating agency changes to aid market

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