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iif on risk management April 10, 2008

Posted by Bradley in : Uncategorized , trackback

There’s some very interesting material on risk in the IIF’s Committee on Market Best Practices’ just published Interim Report. For example:

For complex, structured products, a number of product-design issues require risk management examination, and a robust new product approval and monitoring process including oversight from the most senior levels of the firm. For example, the
“triggers”in structured products — ratings, asset-performance or other tests that suddenly require credit enhancement or liquidation of a vehicle — may, in some cases, have been treated as essentially drafting issues, with insufficient analysis of their
potential cumulative effect on the product, holders of interests, or the firm. It is also important to consider the implications of payment “waterfalls”through tranches, both for own account and for investors, and to analyze a firm’s holdings of all tranches of a given deal on a consolidated basis. As a general matter, the various disciplines involved in developing complex transactions (business, legal, compliance, risk, operations, accounting, tax, etc.) may more often than has sometimes been the case need to step back and look at transactions from an integrated, economic point of view over its development from inception to maturity, rather than from a series of specialists’ viewpoints.

There are some implications here in terms of how we should be developing cross-disciplinary education in business, finance and law.

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