FOREIGN EXCHANGE RISK
MANAGEMENT GUIDELINES
Social Islami Bank Limited
Head Office, Dhaka
Updated on 31st December 2014
INDEX
1.00 FOREIGN EXCHANGE TREASURY OVERVIEW 01-04
1.0 Introduction…………………………………………………………………… 01
1.1 Scope………………………………………………………………………….. 01
1.2 Purpose………………………………………………………………………... 01
1.3 Foreign Exchange Treasury Products………………………………………… 01
1.4 Common Foreign Exchange Treasury Functions…………………………….. 02
1.5 Segregation of Foreign Exchange Treasury…………………………………... 03
1.6 Terminologies of Foreign Exchange Treasury……………………………….. 03-04
2.00 ORGANIZATIONAL STRUCTURE 05
2.1 Organizational Structure……………………………………………………… 05
2.2 Linkage between FX Treasury & Money Market Dealings of SIBL………… 05
3.00 TREASURY FRONT OFFICE/DEALING ROOM 06-07
3.0 Treasury Front Office/Dealing room…………………………………………. 06
3.1 Front Office Equipments/infrastructure………………………………………. 06
3.2 Specific Job description………………………………………………………. 06
3.2.01 Head of Treasury……………………………………………………………... 06
3.2.02 Chief Dealer/In-charge……………………………………………………….. 06-07
3.2.03 Foreign Currency &Local Currency Money Market Dealer…………………. 07
3.2.04 Security and Statutory Management Dealer………………………………….. 07
3.2.05 Corporate Dealer……………………………………………………………… 07
4.00 TREASURY MID OFFICE 08
4.1 Treasury mid office…………………………………………………………… 08
4.2 Job description of Marker risk Management…………………………………. 08
5.00 TREASURY BACK OFFICE 09-10
5.0 Treasury Back Office…………………………………………………………. 09
5.1 Treasury Back Office Functions……………………………………………… 09
5.2 Treasury Back Office Equipments……………………………………………. 09
5.3 Job description………………………………………………………………... 09
5.3.01 Head of Back Office………………………………………………………….. 09
5.3.02 Foreign currency (FCY) Nostro Reconciliation……………………………… 09
5.3.03 FCY Position Reconciliation…………………………………………………. 10
5.3.04 Regulatory & Risk Reporting………………………………………………… 10
5.3.05 FYC Settlements……………………………………………………………… 10
6.00 FX TREASURY PROCESS AND OPERATIONAL CONTROL 11-12
CHECKLIST
6.0 FX Treasury Process & Operational Control Checklist………………………. 11
6.1 FX Process Flow Chart.(Annexure-III)………………………………………. 11
6.1.01 Pre Trade Preparation & Deal Capture……………………………………….. 11
6.1.02 Confirmation………………………………………………………………….. 11-12
6.1.03 Settlement…………………………………………………………………….. 12
6.1.04 Reconciliation…………………………………………………………………. 12
6.1.05 Accounting……………………………………………………………………. 12
7.00 RISK CONTROL & MANAGEMENT 13-24
7.0 Risk Control & Management…………………………………………………. 13
7.1 Risk in FX Treasury…………………………………………………………... 13
7.1.01 Operational Risk………………………………………………………………. 13
7.1.02 Market Risk…………………………………………………………………… 13
7.1.03 Investment Risk……………………………………………………………….. 13
7.1.04 Liquidity Risk…………………………………………………………………. 13
7.1.05 Price Risk……………………………………………………………………... 13
7.1.06 Compliance Risk……………………………………………………………… 14
7.1.07 Strategic Risk…………………………………………………………………. 14
7.1.08 Reputation Risk……………………………………………………………….. 14
7.2 Money Market Dealing……………………………………………………….. 14
7.2.01 Introduction , Scope & Purpose………………………………………………. 14
7.2.01.01 Introduction…………………………………………………………………… 14
7.2.01.02 Scope………………………………………………………………………….. 14
7.2.01.03 Purpose………………………………………………………………………… 14
7.3 Policy Statement for Dealing Room operation(Money Market) ……………... 14
7.3.01 Statutory Reserve Ratio……………………………………………………….. 14
7.3.02 Core Deposit Calculation……………………………………………………… 14
7.3.03 Investment…………………………………………………………………….. 14
7.4 Purchase of Govt. Securities…………………………………………………... 14
7.4.01 Liquidity shortfall reporting…………………………………………………… 14
7.4.02 Landing and Borrowing……………………………………………………….. 14
7.5 Treasury Back Office………………………………………………………….. 15
7.5.01 Profit Receipt and Payment…………………………………………………… 15
7.5.02 Code of Conduct………………………………………………………………. 15
7.5.03 Counter Party Limit…………………………………………………………… 15
7.6 Treasury Front Office Policy Guidelines……………………………………… 15
7.6.01 FX Dealing Limits…………………………………………………………….. 15
7.6.01.01 Daylight/intra-day limit……………………………………………………….. 15-16
7.6.01.02 Stop loss Limit………………………………………………………………… 16
7.6.01.03 Overnight Limit……………………………………………………………….. 16
7.6.01.04 MAT (Management Action Trigger)………………………………………….. 16
7.6.01.05 Counter Party Limit…………………………………………………………… 16
7.7 Dealers Individual Limit………………………………………………………. 16
7.8 Limit Control Policy…………………………………………………………... 16-17
7.9 Dealing activities control policy………………………………………………. 17-18
7.10 Merchant Transactions………………………………………………………… 18-19
7.11 Management of Nostro A/Cs………………………………………………….. 19
7.12 Reporting line of The Treasury Front Office………………………………….. 19
7.13 Preservation of records………………………………………………………... 19
7.14 Dealing Hour, After hours & Off-Premises Dealing………………………….. 19
7.14.01 Dealing Hour………………………………………………………………….. 20
7.14.02 After hours…………………………………………………………………….. 20
7.14.03 Off-Premises Dealing…………………………………………………………. 20
7.15 Mandatory Leave……………………………………………………………… 20
7.16 Taped Conversations:/Voce Recording……………………………………….. 20
7.17 Dealers Code of Conduct……………………………………………………… 20-21
7.18 Treasury Front Office is restricted from………………………………………. 21
7.19 Treasury Mid Office Policy Guidelines……………………………………….. 21
7.20 Treasury Back Office Policy Guidelines……………………………………… 22
7.20.01 Deal Checking…………………………………………………………………. 22
7.20.02 Deal Confirmation…………………………………………………………….. 22
7.20.03 Deal Settlement/Delivery……………………………………………………… 22
7.20.04 Merchant Transactions………………………………………………………… 23
7.20.05 FCY Position Reconciliation………………………………………………….. 23
7.20.06 Valuation of Foreign Currency………………………………………………... 23
7.20.07 Nostro A/Cs Reconciliation…………………………………………………… 23-24
7.20.08 Custody……………………………………………………………………….. 24
7.20.09 Treasury Back Office is Restricted from……………………………………… 24
7.20.10 Reporting line of Treasury Back office……………………………………….. 24
8.00 TREASURY AUDITING 25-27
8.0 Treasury Auditing……………………………………………………………... 25
8.1 Areas to Audit…………………………………………………………………. 25
8.2 Policy Guidelines……………………………………………………………… 25
8.3 Rate Appropriateness………………………………………………………….. 25-27
8.4 Deals Outstanding Limit………………………………………………………. 27
9.00 CONCLUSION 28
ANNEXURE I-IX
01 Organizational Chart of Treasury……………………………. Annexure-I
02 Reconciliation Flowchart……………………………………... Annexure-II
03 The process Flowchart………………………………………… Annexure-III
04 Daily Foreign Exchange Blotter………………………………. Annexure-IV
05 Foreign Exchange Deal Slip…………………………………… Annexure-V
06 FX Treasury Risk Report………………………………………. Annexure-VI
07 Confirmation of FX Deals……………………………………... Annexure-VII
08 Value AT RISK………………………………………………... Annexure-VIII
09 Mark to Market Revaluation on Unequaled Deal……………… Annexure-IX
