Course Code: 522

Duration: 1 day

Level: Basic

Fee: $795.00

Instructor: William DuMond

CPE Credits: 7

Prerequisite: No Prerequisite Required

This one-day course will review several classes of risk, from the classic risks associated with default or market risks to systemic risks and a number of less than usual risks. Risks are demonstrated with examples drawn from the history of financial risk management including headlines from 2008. Observation by the Instructor - "There are no new risks, only old risks dressed up in the latest fashion."

The instructor has thirty years of experience managing risks in the capital markets and US securities processing area.  In addition to identifying the risk, we will discuss how to best manage the risks with an emphasis on measuring and managing risks. The instructor's delivery style and apt examples makes this a very informative course.

The audience for this course should include all levels of management in staffs dedicated to compliance, operations, credit extension or even general managers.  Since the best defense against risk is recognition of the possibilities, this course is also useful as a background course for all members of the staff. Employees schooled on the history of risk are more likely to recognize it in the early stages before the risk becomes institutionally threatening. Risk can show up unannounced in any area of a firm.

Topics covered include:

Classic Risk Exposure:

• Default/ Failed Counterparty Risk-Payment Due is not Made 
• Market Risk - Collapse of Value
• Liquidity Risk - Converting Assets to Cash is difficult 
• Sovereign Risk/Force Majeure - We are at War
• Reputation Risk - Let me walk down Wall Street with My Arm Around You--JPMorgan
• Violating the 5 C's of Credit Extension Risk
• Moral Hazard Risk - Enabling Bad Behavior?
• Over leverage Risk - Leverage is tied to the assets being financed
• OPM/ Heads I Win, Tails Someone Else Picks Up the Tab Risk
• FX Risk
• Failure of Governance Risk
• Political Risk
• Misused Moral Suasion Risk

Systemic Risks:

• Data Integrity Risk - Automated trading on anomalies and the price is just wrong
• Undue Complexity Risk - Warren Buffett- "If I don't understand it, I don't Buy it"
• Too Big to Fail Risk/Moral Hazard - Why Lehman Brothers?
• Too Interconnected to Fail Risk - AIG and Metastatic Failure
• Inflation Risk/Stagflation - Weimar on the Hudson?
• Vital Commodity Volatility Risk - "We must be energy independent" - Gerald Ford
• Key Systems Failure Risk - When BONY's Govi System could ONLY receive trades
• Terrorism Targeted Risk - It won't be a crashing plane next time
• Unsynchronized Settlement Risk - CLS Cured Herstatt Risk - What's next?
• Settlement Utility Gridlock Risk - Settlement Systems Designed for One Big Fail Daily
• Inappropriate Mark to Market Risk - How GAAP Almost Sank the Boat
• Intraday Consolidated Failed Counterparty Exposure Risk - LTCM Risk - Silos Live
• Perfect Storm /Multi-Error/Delayed Problem Recognition Risk - Confirming Friday on Tuesday
• Outlier Risk - Tsunami When You Least Expect It Risk - Why Trading Limits Exclude Outliers
• Santayana Generational Risk - The Depression Era Survivors Mentees are Retired
• Internal Operational Risks - Using Metrics to Spot Problems Early
• Untested Insurance Risk
• Santayana Risk - Poor Knowledge of Risk History
• The Multiples Risk
• Slow and Long Asset Securitization Pipeline Risk
• Herstatt/Flight to Quality Risk
• Enron/Bear Stearns Out of Sight Out of Mind Risk - SIVs
• Infrastructure Intellectual Underinvestment Risk
• Cross Systems Processing Risk
• Systems Conversion, Enhancement and Consolidation Risks - Failure to Muscle

Less than Usual Risks: (Unusual risks are very infrequent and not as threatening as the classic or systemic risks, but still worth knowing about)

• Asset Transfer Time Delay Risk
• Time compression Risk and T+1 Settlement
• Lengthy Litigation Risk
• Reno Operational Risk - Unreconcilable differences 
• Disaster Recovery Risk
• Outsourcing Risks /Unanticipated Downsides - Force Majeure
• Physical Security Risk/Undue Concentration of Talent
• Imperfect Hedging/rising cost of hedging risk
• New Systems Design/Installation Risk
• Poor or delayed Due Diligence review
• Irrational Markets Risk - Normal Correlations Disappear
• Lender of Last Resort Failure or In doubt Risk
• Unanticipated Material Legislative Change Risk
• Vendor Risks
  • Undercapitalization Risk
  • Key Man Departure Risk
  • Thin Backup Risk
  • Poor Documentation Risk
  • Security Breach Risk
  • Force Majeure in Foreign Sites
• Concentrated Talent Risk - Emerson's Law of Compensation
• Unfamiliar Clearance Risk
  • New Product
  • New Country
  • New System
• Understanding the Handoff of New Trading Vehicles Risk
• Hubris, Yes-Man, Inadequate Succession Risk
• Narrow Experience Ascendancy Risk
• Multiples Risk
  • Multiple Interested Parties
  • Multiple formats-SWIFT, Proprietary, ISITC
  • Multiple Communication Channels
  • Multiple Time Deadlines

Managing All Risk - Things That Can Be Done