PowerPoint Presentation

[Audio] a fundamental truth or proposition that serves as the foundation for a system of belief or behavior or for a chain of reasoning..

[Audio] TCP covers Front- and Bank-Office, TOCP covers Back- and Middle-Office.

FX Global Code: a common set of guidelines to promote the integrity and effective functioning of the wholesale FX market. It aims to promote a market which is: Robust Fair Liquid Appropriately Open transparent.

[Audio] Ethics refer to the moral principles that govern our behavior. Etiquette is a set of rules indicating the proper and polite way to behave..

To provide the requisite training and compulsory certification exam through the Ateneo-BAP Institute of Banking Treasury Certification Program on the behavior and conduct of Treasury market participants to adhere to a moral compass and global set of standards that are universally applicable; and to conform to the local trading conventions covering the individual markets the market participants trade in, focused on the front-office and related dealing functions..

1997. Genesis of the PH Model Code as an integral module of the Ateneo-BAP Institute of Banking Treasury Certification Program.

TREASURY CERTIFICATION PROGRAM – The PH Model Code Module: will enable participants to have both a thorough understanding of the principles as well as their applications, to enable them to understand the expectations on them to promote integrity and effective functioning of the FX markets. This program is designed for the following groups: Financial market participants across buy side, sell side and intermediary institutions as well as regulators Middle office and operations personnel Compliance and risk officers Market Participant generally refers to both firms and personnel. However, in some cases it will be clear that a principle is by its nature more relevant to only one or the other. For example, certain principles deal primarily with business or firm-level policies and procedures rather than individual behaviors..

TCP Candidates should be able to recall what they have learned.

[Audio] TOTAL OF 44 PROVISIONS Left Panel 9 Right Panel 12 = 21.

[Audio] Left Panel 10 Right Panel 8 = 18. 10. |. Scope.

[Audio] Left Panel 5 = 5. 11. |. Scope. LEADING PRINCIPLE V: RISK MANAGEMENT & COMPLIANCE Key Principles 24-41 General Risk Management Principles Enterprise Risk Management LEADING PRINCIPLE VI: Key Principles 42-55 CONFIRMATION & SETTLEMENT Confirmation of Trades Netting Settlements Terms and Documentation Fraud Key Market Terminology Glossary of Terms.

Mission Statement: To be a leading, global association of wholesale financial market professionals, contributing to the market development through education, market practices, technical advice and networking events Standard of the International Financial Markets in terms of: Maintaining the professional level of competence and the ethical standards Committing to maintain the highest possible standards in their profession by setting an example of propriety and best ethical behavior in business Offering global third party certifications.

Key Principles 1-3 General Personal Conduct Drugs, Alcohol and Substance Abuse Gambling/Betting between Market Participants Entertainment and Gifts Dealing for Personal Account.

Why Ethics Matters in Trading. Decentralized (OTC) and unregulated Market participants impose form of self-regulation by holding themselves bound to The revised PH Model Code (2020) which may form an integral part of a financial institution’s policies and procedures documented by the Risk Management Group.

15. |. Timeless Values. Tel x & Telephone Reuters Dealing Exchange Voice Brokers Interne -based Platforms.

[Audio] (of an independent person or body) reach an authoritative judgment or settlement.

17. |. Treasury market participants must not engage in act involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity or competence. They must also ensure that their overall conduct and demeanor are appropriate with respect to the highest standard of professionalism as adhered to by their institution and the banking industry as a whole..

18. |. General Personal Conduct. Treasury market participants should be made aware of the consequences of their professional, ethical and social behavior. It is expected that they will comply with the highest code of conduct standards in all that they do for the organization, the market and in their personal lives. They may be held accountable for any actions or discussions which break fair market practices, and damage the reputation of their company and their profession..

ILLUSTRATIVE EXAMPLE: An FX trader received his daily Foreign Currency Ledger report from the Financial Control Unit of the bank showing his consolidated FX position. That morning, the report showed a long position of USD 5MM when the trader was only expecting to be square for that day. He verifies with the Financial Control officer his position and the long position was caused by some unspotted trade transactions. The USD/PHP price was trading lower and he would therefore incur a loss given his position. Out of frustration, he shouts and curses at the Financial Control officer. The Treasurer, being a witness to the FX trader’s unethical behavior, talks to the him and warns him that this behavior is not acceptable..

Traders are paid to use professional judgment on the financial markets; as such they should avoid substances that impair that judgment ..

Gambling/Betting between Market Participants. Gambling or betting between and amongst market participants has obvious dangers and should be strongly discouraged. Making or arranging of bets among Treasury market participants is expressly within the dealing room forbidden. It is strongly recommended that management has a clearly defined, written policy on the control of gamblin or betting..

ILLUSTRATIVE EXAMPLE: The Chief Dealer comes back from his lunch break early and catches his FX traders playing poker with a little sum of money involved. The Bank doesn’t have a formal internal policy on gambling or betting but the Chief Dealer reminds his traders that this is an unethical behavior and that gambling or betting is strongly discouraged in the dealing room..

Entertainment & Gifts. ILLUSTRATIVE EXAMPLE Some traders demand excessive entertainment from brokers and even pit brokers against each other in terms of who takes them out more, or spends more or stays up latest to party with them. A well-known story: A trader inviting a broker out on a weekend and having the broker foot the party bill for the trader and his family/friends..

Entertainment & Gifts. Management should monitor the form, frequency and cost of entertainment/gifts that the dealers receive, and should have a clearly articulated policy towards the giving/receipt thereof, ensuring it is properly observed. Management should establish procedures for dealing with gifts judged to be excessive but which cannot be declined without causing offence, and ensure the transparency of all offers of entertainment, whether received or provided. Entertainment should neither be offered nor accepted where it is underwritten but not attended by the host. ..

ILLUSTRATIVE EXAMPLE An FX trader receives from the Bangko Sentral ng Pilipinas a gift basket for Christmas. The Bank has an internal policy wherein they are not allowed to receive any gifts, no matter how inexpensive, from any government institutions. The FX trader decides to call the BSP official who sent the gift basket and graciously declines and returns the gift basket explaining their internal policy..

Dealing for Personal Account. Management should establish guidelines concerning the following: - Personal investments by dealers - Investments or deals on behalf of dealer’s family, other members of personnel and management - Instruments and products closely related to the ones in which the dealer trades for the institution, avoiding conflict of interests - Full disclosure and transparency of trades for personal account, particularly where day trading for personal account is allowed. This should ensure that the trader gives full attention to the institution’s business..

Dealing for Personal Account. Written procedures should clearly stipulate the institution’s control policy in relation to ‘front running’ or ‘parallel running’; where traders knowingly execute trades in front of a customer order. There should be a full disclosure and transparency requirement, ensuring that the traders give their full attention to their institution’s business without being distracted by personal financial concerns. Client transactions must take precedence over transactions made on behalf of the dealer’s institution or dealer’s personal transactions.

ILLUSTRATIVE EXAMPLE An FX trader receives a call from their Relationship Management Group (RMG) requesting for a bid price for USD/PHP for one of their RMG client. The RMG trader casually mentions that his client was the FX trader’s father. The FX trader decides to pass the phone call to another FX trader to avoid any conflict of interest..

Key Principles 4-7 Frameworks - BSP Governance Principles - ERM Framework - GRC Framework - Compliance Framework Segregation of duties Independent Risk Controls.

BSP Governance Principles for FX Markets Oversight. The FX market shall be overseen by the Bangko Sentral ng Pilipinas (BSP) pursuant to its mandate to determine the exchange rate policy of the country under R.A. No. 7653. Market organization and recognition. Industry players with legitimate economic reasons to establish a market in a particular currency pair shall be allowed to do so. Participants to a market shall multilaterally commit to bind themselves to mutually-agreed upon rules that govern the market’s operations, as well as to rules that may be promulgated by the regulator. Entry to and participation in a market shall be non-discriminatory. Any institution that meets pre-set criteria shall be allowed to participate..

BSP Governance Principles for FX Markets Exchange rate determination. Exchange rates shall be determined by the market forces of supply and demand. FX markets shall adopt rules and conventions that can effectively curtail practices that are intended to manipulate supply and demand for the purpose of influencing exchange rates. Pre- and post-trade transparency. FX markets shall ensure adequate transparency of quotes and orders (pre-trade transparency) and of completed transaction details (post-trade transparency). These markets shall have mechanisms which satisfy the transparency requirements of the market participants, the public, and the regulator..

BSP Governance Principles for FX Markets Settlement. Market participants shall designate a bank to serve as the settlement agent for the foreign currency leg and the Bangko Sentral ng Pilipinas for the PHP leg. Market participants shall enter into the appropriate arrangements for this purpose. Infrastructure. FX markets shall have the necessary infrastructure to support efficient and reliable trading, clearing, and settlement processes. Markets shall have a defined process for engaging infrastructure providers to ensure that they have the appropriate technical expertise and strong financial capacity. Market participants shall be responsible for establishing business continuity plans and ensuring that these are robust and adequately tested. Procedures for the identification, investigation, escalation, and reporting of incidents shall be set.

BSP Governance Principles for FX Markets Compliance with laws, rules and regulations, and market-determined standards. To instill discipline, integrity, and accountability in market participants and to uphold orderly market operation, the participants shall agree or subscribe to a code of conduct, business rules, and conventions that shall govern their FX activities. Their code of conduct, business rules, and conventions shall conform to Philippine FX laws and regulations as well as to global standards. Audit and review. Markets shall put in place assurance mechanisms to determine whether participants continuously comply with the market’s rules. The market’s rules, standards, and processes shall be adequately documented. Markets’ documents and processes shall be subject to review by the BSP..

[Audio] Steering Committee: ERM processes need to be built with stakeholders in mind and designed to suit the needs of the organization. Since ERM is ultimately strategic in nature, it will never succeed without support from the chief executive officer and other C-suite officers. High-level executives who could be recruited for this committee include the chief financial officer, general counsel, chief operating officer, and internal audit director. Project Team: The group driving the process needs knowledge of business operations (not only the financials) and risk assessment skills. The more complex the business, the more operations people need to be on the project team. Ideally, the team leader should be someone who understands risk assessment. Project Charter: This document clearly establishes the objectives, what the project team plans to deliver and in what time frame. Although ERM is a process, the charter recognizes that this is a project with a defined time span and deliverables that will recommend best ways to move forward..

Enterprise Risk Management Overarching ERM Principle: Create Value on Risk-Adjusted Basis MANAGEMENT UNIT Board of Directors CEO/CFO/CRO CEO/CFO/CRO R 6k Maragemert Cornmitee Asset/Liability Committee Product Committee Corporate Planning Example Tone from the Top RISK PROCESS MAP Set Revenue Goals Define Risk Philosophy Create a Risk Culture PROGRAM Industry Best Practices Strategic Financial Plan IT Plan Risk Awareness Role Definition Product Programs The Risk Culture is based on the following concept: Institutional Client Group must work with the business with the goal of taking Intelligent Risk with Shared Responsibility, without forsaking Individual Accountability..

MANAGEMENT UNIT Risk-Taking Personnel Board of Directors Risk Management Group Risk-Taking Personnel Risk Management Group Risk-Taking Personnel Risk Management Group Board of Directors Risk-Taking Personnel RISK PROCESS MAP Determine Opportunities Identify Risks Quantify Risks Evaluate Risks Define Risk Tolerance Take Risks PROGRAM Market Studies Institutional Risk Assessment Risk Taxonomy Product Programs Volatility Studies Value-at-Risk Factor Sensitivity Stress Testing VaR & Stop Loss Limits Loss Alert, Volume Limits Liquidity Limits Credit Risk Limits Trend Analysis Technical Tools Cut Loss Orders 12.

O O O a- MANAGEMENT UNIT Risk Control and Compliance (RCC) Risk Control and Compliance (RCC) Risk Control and compliance (RCC) Internal Audit (IA) CEO/CFO/CRO (Board of Directors) Risk Management Group RISK PROCESS MAP Capture and Revalue Positions Monitor and Report Risk Control Risk Review Risk-Taking Performance Revalidate Risk Methodologies PROGRAM Mark-to-Market Net Present Value Murti-Currency Subsidiary Ledgers (MSL) P&LAccounting Maximum Cumulative Outflow Limit Excess Report Management Reports Internal Control System Audit Review Budget Review Performance Appraisal Model Revalidation Risk Policies and Procedures Internal Audit Organization Limits Structure Systems and Technology Reports Risk Modeling ERM Significantly Important Infrastructure.

Ensure relevant practices and mechanisms are in place.

Management model integrating 3 functions into a single discipline, to achieve risk-adjusted returns while conforming to external rules and internal policies.

Segregation of Duties. Lessons from Leeson Absence of functional segregation between trading and settlement Lack of internal controls Inadequate management oversight Overleverage and bad market call Dealer’s ego and greed Limited understanding regarding the product.

ILLUSTRATIVE EXAMPLE: It is the end of the month and the Risk Management Group needs to do their month-end mark-to-market duties. One of the USD corporate bonds that the Treasury team has in their portfolio is illiquid and is difficult to get a market price. The Risk Officer decides to call their Treasury’s bond trader to request for an indicative price. Since the bond trader may give a price that is favorable to their portfolio, the Risk Officer requests from the bond trader to get quotes from 3 counterparties and to have these quotes documented..

Review incentive programs (e.g., do they encourage excessive risk-taking) External as well as internal auditing and examinations “Four-eyes Principle”: Dual control system of maker/checker system for verification of transaction details Physical controls (e.g., restricted access to tangible assets, periodic inventory count and recon).

Independent Risk Controls. Market participants should have highly developed, adequately staffed and fully independent audit, compliance, control, risk management covering all areas of their institution, or the middle office and may be a discrete part of the treasury department or a separate business unit. Rigorous and transparent self-assessments should be performed by internal audit departments at least annually with exceptions recorded and corrective action tracked. Banks should offer employees the opportunity to raise issues and concerns anonymously and without fear of retribution..

Key Principles 8-18 Role of Principal/Agent Stop Loss Orders Pre-hedging Market Disruption Market data and information Mark-up Confirmation of trades Name Switch Last Look Algo execution, aggregation Customer Relationship, Advice and Liability.

Role of Principal/Agent. Market Participants should understand and clearly communicate their roles and capacities in managing orders or executing transactions. A Market Participant receiving a Client order may: act as an Agent, executing orders on behalf of the Client pursuant to the Client mandate, and without taking on market risk in connection with the order; or act as a Principal taking on one or more risks in connection with an order, including market and credit risk..

Stop Loss Orders. Orders by one party (order giver) to buy or sell a currency at or within a given range, to another party (accepting bank); have different conditions for triggering order varying ramifications for “slippage” to be incurred and what discretion is implied Bank management must ensure terms are identified, documented and agreed clear understanding of obligations and limitations of liability of counterparty accepting order clear policies for dealers who accept and execute orders.

Situation/Simulation A Derivatives Trader has an open USD IRS position where he pays fixed at 1.75% and receives floating. He wanted to leave an order to close his position just in case the market goes against him. He calls the derivatives sales desk of Jacobs Ladder Bank to leave the order in which the sales person asks whether this is a stop-loss order or whether he is opening a position. The derivatives trader did not want to divulge his current position but the sales person explains that their trader will support his position if it is a stop-loss order and will only trigger the stop loss once the bids are actually hit. The sales person also explains that there might be a slippage of about 1-2 bps. The Derivatives trader of Lucas Numbers Bank agrees to these conditions and leaves the following stop-loss order: “this is to confirm that we leave a USD IRS order wherein Lucas Numbers Bank receives USD fixed of 2%, semi-annual payment, act/360 and modified following business convention; and pays floating of 6-mo., reset semi-annually, with quarterly payments, 30/360 and modified following business convention for USD 10MM. Order is good until NY close 15 January 20xx”. Jacob Ladder Bank confirms and agrees to the stop-loss. The slippage of 1-2bps is not confirmed in writing but is agreed upon verbally..

Principle 11 A Market Participant should only pre-Hedge Client orders when acting as a Principal, and should do so fairly and with transparency. Pre-Hedging is the management of the risk associated with one or more anticipated Client orders, designed to benefit the Client in connection with such orders and any resulting transactions. Market Participants may Pre-Hedge for such purposes and in a manner that is not meant to disadvantage the Client nor disrupt the market. Market Participants should communicate their pre-hedging practices to their Clients in a manner meant to enable Clients to understand their choices as to execution. In assessing whether pre-hedging is being undertaken in accordance with the principles above, a Market Participant should consider prevailing market conditions (such as liquidity) and the size and nature of the anticipated transaction..

While undertaking pre-hedging, a Market Participant may continue to conduct ongoing business, including risk management, market making, and execution of other Client orders. When considering whether pre-hedginp is being undertaken in accordance with the principles above, pre-hedging of a single transaction should be considered within a portfolio of trading activity, which takes into account the overall exposure of the Market Participant. When a Market Participant is acting as an Agent, the Market Participant should not pre-hedge..

ILLUSTRATIVE EXAMPLE: A bank has disclosed to a Client that the bank acts as Principal and may pre- hedge the Client’s orders. The bank has a large Stop Loss buy order for the Client, which it anticipates might be triggered. The bank expects that there are many similar orders in the market at this important technical level and recognizes the risk for substantial slippage during execution. The bank decides to pre-Hedge part of the order and starts buying in advance without any intent to push up the market price. However, the market spikes above the Stop Loss level due to the buying by other Market Participants which is triggered when the market price hits the technical level. The order is triggered but, as a result of pre-hedging, the bank is able to provide an execution price close to the Stop Loss level..