Investment Operations

Life Cycle of a Financial Derivative

Course Instructor

Course Level

Beginner

Certification

Certificate

Delivery

Via Zoom

Hours (EST)

9:00 am - 1:00 pm​

Description

Date: TBD

The Lifecycle of a Financial Derivative virtual course is tailored for bank examiners, supervisors, auditors, and compliance professionals who need to understand the operational and legal risks of major foreign exchange, interest rate, equity, and credit derivatives. The course will consist of an interactive lecture and in-depth exercises. Additionally, relevant articles highlighting recent regulatory, examination, and risk trends in financial derivatives will supplement this course. Prerequisite: None

  • Review mechanics of key foreign exchange, interest rate, equity, and credit derivatives
  • Evaluate major components of the ISDA Master Agreement
  • Compare and contrast responsibilities and best practices of banks’ front, middle, and back offices: importance of operations to avoid systemic risk
  • Evaluate the influence of Basel III and financial regulatory reforms  on the treatment of financial derivatives
  • Identify key elements in the life cycle of a financial derivative

Prerequisite: None

Agenda

Financial Risks and Risk Management

  • Define risk
  • Review risks that can arise from financial products: credit; market; liquidity; strategic
  • Evaluate evolving definition of legal risk: documentation; compliance
  • Evaluate evolving definition of operational risk: people; processes; technology; external influences
  • Compare and contrast best practices with effective risk management steps
  • Identify the influence of Basel II on operational risk (Possible influence on legal and liquidity risks?)

Overview of Key Financial Derivatives

  • Review mechanics of key derivatives and how they are used to hedge or speculate (foreign exchange, interest rate, and credit)
  • Debate influence of Basel II’s implementation and financial regulatory reform on the treatment of financial derivatives

“ISDA®”

  • Identify key components of the 2002 “ISDA®” architecture
    1. Specifications
    2. Schedules
    3. Confirmation
    4. Netting
    5. Collateral / Credit Support
    6. Opinions
    7. Users’ Guides
  • Protocols (2005 Novation Protocols)
    1. Annexes: their purpose and how they are interrelated
    2. Highlight differences with the 1992 “ISDA®”
    3. Discuss credit and operational issues with derivatives’ documentation
    4. Evaluate importance of derivatives documents in the event of a bank failure and resolution Cases: Lehman, Metavante, and Swedbank.

Trading Operations

  • Describe the organizational structure and best practices expected at a front office (identify transaction flow and reporting)
  • Describe the organizational structure and best practices expected at a middle office
  • Identify key areas of a back office and expected best practices for operations:
    1. Internal controls
    2. Ticket flow
    3. Trade transactions: confirmations; clearance (netting and its uses; discuss role of clearance facilities; DTCC)
    4. Evaluate requirements for margin
    5. Settlements (discuss risks during the settlement process)
    6. Foreign payments
    7. Reconciliations
    8. Discrepancies and disputed transactions
    9. Revaluation
    10. Documentation and record keeping

Summary & Questions

In-House Training

Custom Training can help you achieve your corporate training goals while staying on budget and focusing the content on the needs of your group. Email your questions regarding corporate training to training@investmentoperations.net.

2023 Training Calendar

Training Catalogue

Course Instructor

Course Level

Beginner

Certification

Certificate

Delivery

Via Zoom

Hours (EST)

9:00 am - 1:00 pm​

Description

Date: TBD

The Lifecycle of a Financial Derivative virtual course is tailored for bank examiners, supervisors, auditors, and compliance professionals who need to understand the operational and legal risks of major foreign exchange, interest rate, equity, and credit derivatives. The course will consist of an interactive lecture and in-depth exercises. Additionally, relevant articles highlighting recent regulatory, examination, and risk trends in financial derivatives will supplement this course. Prerequisite: None

  • Review mechanics of key foreign exchange, interest rate, equity, and credit derivatives
  • Evaluate major components of the ISDA Master Agreement
  • Compare and contrast responsibilities and best practices of banks’ front, middle, and back offices: importance of operations to avoid systemic risk
  • Evaluate the influence of Basel III and financial regulatory reforms  on the treatment of financial derivatives
  • Identify key elements in the life cycle of a financial derivative

Prerequisite: None

Agenda

Financial Risks and Risk Management

  • Define risk
  • Review risks that can arise from financial products: credit; market; liquidity; strategic
  • Evaluate evolving definition of legal risk: documentation; compliance
  • Evaluate evolving definition of operational risk: people; processes; technology; external influences
  • Compare and contrast best practices with effective risk management steps
  • Identify the influence of Basel II on operational risk (Possible influence on legal and liquidity risks?)

Overview of Key Financial Derivatives

  • Review mechanics of key derivatives and how they are used to hedge or speculate (foreign exchange, interest rate, and credit)
  • Debate influence of Basel II’s implementation and financial regulatory reform on the treatment of financial derivatives

“ISDA®”

  • Identify key components of the 2002 “ISDA®” architecture
    1. Specifications
    2. Schedules
    3. Confirmation
    4. Netting
    5. Collateral / Credit Support
    6. Opinions
    7. Users’ Guides
  • Protocols (2005 Novation Protocols)
    1. Annexes: their purpose and how they are interrelated
    2. Highlight differences with the 1992 “ISDA®”
    3. Discuss credit and operational issues with derivatives’ documentation
    4. Evaluate importance of derivatives documents in the event of a bank failure and resolution Cases: Lehman, Metavante, and Swedbank.

Trading Operations

  • Describe the organizational structure and best practices expected at a front office (identify transaction flow and reporting)
  • Describe the organizational structure and best practices expected at a middle office
  • Identify key areas of a back office and expected best practices for operations:
    1. Internal controls
    2. Ticket flow
    3. Trade transactions: confirmations; clearance (netting and its uses; discuss role of clearance facilities; DTCC)
    4. Evaluate requirements for margin
    5. Settlements (discuss risks during the settlement process)
    6. Foreign payments
    7. Reconciliations
    8. Discrepancies and disputed transactions
    9. Revaluation
    10. Documentation and record keeping

Summary & Questions

In-House Training

Custom Training can help you achieve your corporate training goals while staying on budget and focusing the content on the needs of your group. Email your questions regarding corporate training to training@investmentoperations.net.

2023 Training Calendar

Training Catalogue

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