IMC ANNUALREPORT 2020 - Flipbook - Page 50
IMC ANNUAL REPORT 2021
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.2. RISK FRAMEWORK
3.4. MARKET, CREDIT AND LIQUIDITY RISK
IMC’s risk framework is based on enterprise-wide risk management and
can be dividend in five main building blocks:
• Business and strategic risk
• Market, credit and liquidity risk
• Operational risk
• Compliance
• Information security
3.4.1. Market risk
Risk appetite and tolerance levels are defined for the main types of risk.
Management of these risks consists of a continuous cycle:
• Identifying and assessing risks by using risk assessments; all relevant
risks are defined and assessed using impact and likelihood
• Determining adequate controls to mitigate the risks to acceptable
tolerance levels
• (Intra-day) monitoring of important risk issues and reporting to
relevant stakeholders. The Risk and Compliance teams have several
(intra-day) monitoring tools in place to keep track of relevant risks.
A detailed reporting framework is developed to create risk reports
to several layers of relevant stakeholders to make sure information
is shared.
Price and valuation risk
Market risk arises from fluctuations in interest rates, volatilities, foreign
exchange rates, future dividend expectations and underlying prices. This
includes several asset classes like equity, fixed income, commodities, FX
and cryptographic assets. A global limit structure is in place to limit
exposures to all relevant market factors. The risk management
department monitors the market risk exposures intraday.
Price and valuation risk is measured in terms of Greeks, scenarios and
stresses. Limits are set for all the scenarios. Based on the limits set per
underlying, a sector, or the aggregated total for the Group, limit
breaches, if any, will trigger actions in order to reduce the risk. Limit
breaches are discussed in the Local and Global Risk Committee.
The Group has a so-called event-risk program in place that quantifies
different event scenarios, such as a combined downward scenario with
an appropriate change in implied skew and term structure of volatilities
or by setting all future dividends proportionally lower. The event risk
exposure is monitored daily and may lead to for example altering
positions.
3.3. BUSINESS AND STRATEGIC RISK
Consolidated
financial statements
Notes to the consolidated
financial statements
Company
financial statements
Other information
Independent Auditor’s report
Business and strategic risk arises from changes in macroeconomics and
industry developments that impact the profitability of the business
model.
All scenarios are compared against limits per strategy as set by Risk
Management intraday and real-time. Any breaches have to be agreed
with Risk Management and limit usages are reported to Management
the next day.
IMC’s profitability is dependent on trading activity in the financial
instruments it trades; lower trading volumes and low volatility in
financial markets can have an adverse effect on profitability. Part of
IMC’s global strategy is to trade on multiple markets, in multiple
products with a diversified set of strategies to mitigate these
circumstances and to reduce decency on a single market or product.
Scenarios that are used include, but are not limited to:
• Spot moves in both directions
• Volatility moves in both directions
• Combined spot and volatility moves
• Dividend changes
• Interest rate changes
IMC follows a thorough process to define its business strategy which is
evaluated on a continuous basis to be able to make changes when
needed and optimize the profitability and risks of its business model.
The marked to market value of the instruments are stressed using
different movements. The movements used in the scenarios are based
on historical moves and hypothetical stress events.
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