The risk of a change in the value of Macquarie’s positions as a result of changes in market conditions.
The business owns market risk arising from their activities. RMG Market Risk is responsible for the Market Risk Management Framework and independent oversight of market risk. Oversight of the Market Risk Management Framework is provided by the Market Risk Committee.
RMG Market Risk undertakes regular reviews of market risk taking areas and limit structures to confirm that the application of the risk management framework is current for each business reviewed.
Traded Market Risk
Traded market risk is market risk arising in Macquarie’s Trading Book. The Trading Book includes all trading positions that meet the criteria defined in Macquarie’s Trading Book Policy Statement.
Macquarie has long favoured transparent scenario analysis as the cornerstone of risk management. RMG Market Risk sets limits for all exposures in all markets. Limits are applied at a granular level to individual trading desks, through increasing levels of aggregation to Divisions and Operating Groups, and ultimately, Macquarie.
Macquarie enforces a strict ‘no limit, no dealing’ rule. Trading positions taken must be within Traded Market Risk Limits. Limits are set with reference to Board approved Risk Appetite Statements, and must be approved by RMG Market Risk prior to dealing.
Traded Market risk exposures are monitored by RMG Market Risk and reported daily to senior management. Limit breaches are immediately investigated by RMG Market Risk and a resolution sought with the trading desk concerned. Breaches are reported to senior management and the Board in accordance with the Market Risk Limits Policy.
Value at Risk (VaR) exposures are calculated daily by RMG Market Risk, in accordance with the Market Risk Limits Policy, for use in the daily calculation of regulatory capital requirements. RMG Market Risk also examines daily profits and losses for consistency with limits and riskiness of position.
Management flags are also used to supplement the monitoring of exposures. Management flags are trigger levels for discussion around risks that are not of an immediate or certain nature but may warrant further discussion between RMG and the business.
Interest Rate Risk in the Banking Book
Interest Rate Risk in the Banking Book (IRRBB) is the risk of loss in earnings or in the economic value of banking book items as a consequence of movements in interest rates. Macquarie has limited appetite for IRRBB, as set out in the Board approved Risk Appetite Statements.
Some residual interest rate risks are unavoidable as a result of underlying business activity. Macquarie’s policy is to hold capital against the economic value sensitivity of these residual interest rate risks. RMG Market Risk provide independent oversight of residual Interest rate risk on a monthly basis.