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Are you already familiar with Markets Valuation Risk Procedures?
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RTDs must ensure that Fair Value estimates are appropriate for in-scope positions on a daily basis.
If there are financial instruments or inputs that cannot be updated daily, they should notify the relevant Controllers during the monthly Business Valuation Control Meetings.
RTDs must propose challenges to consensus data where appropriate.
When requested by the Valuation Control Group (VCG), they should provide responses to these consensus challenges.
Relevant Controllers and Independent Risk Managers must be informed of positions or instruments that will be automatically marked using an external pricing data source as opposed to an internally derived price.
RTDs need to ensure that consistent prices for the same financial instrument or valuation model input are used.
Note: Valuation differences due to different measurement times do not represent an inconsistency.
RTDs should use standardized templates to document information in Valuation Risk Documents (VRDs) related to the use of Primary Models for determining the value of traded products.
More information on this process will appear later in the course.
RTDs should ensure prices used for Fair Valuation measurement comply with the PPV Policy, since an unchanged price could indicate it hasn’t been correctly updated to be in line with market levels as outlined by Unchanged Pricing Procedures.
More information on this process will appear later in the course.
XVA is the term used to encompass valuation adjustments applied to derivative trades to account for factors such as credit risk and funding costs.
Let’s take a closer look at some key XVA Methodologies.
To proceed, select each methodology for more information.
CVA includes two components:
Counterparty Credit Risk is defined as the difference between the portfolio value without counterparty default risk and the portfolio value with counterparty default risk taken into account.
Citi’s Own Credit Risk is defined as the difference between the portfolio value without Citi's own default risk and the portfolio value with Citi's own default risk taken into account.
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FVA represents an adjustment to the baseline valuation, which reflects the additional funding costs associated with the unsecured components of OTC derivative transactions and where Citi cannot reuse customer-posted collateral.
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CoIVA is applied to collateralized (secured) OTC derivatives that capture more advanced considerations of CSAs that are not captured in the trading book discounting approach, such as cash vs securities collateral, partially collateralized trades, floored cash interest, asymmetrical posting, or other such bespoke features.
For further information, please refer to the XVA Methodology Document and the CVA Methodology Document.
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Valuation Methodologies are integral elements that RTDs must document when valuing positions that have material valuation uncertainty.
When seeking pre-trade approval for positions that deviate from normal booking standards, RTDs must submit an approval request via the METRO workflow tool. These are called Trade Booking Exceptions. Pre-trade approval requests must be submitted for approval via the METRO workflow tool and are subject to re-review on at least an annual basis.
Let’s take a closer look at these Trade Booking Exceptions next.
RTDs must ensure pre-approval requests for Trade Booking Exceptions are authorized on their Permitted Product List (PPL) before executing these transactions. The product must be accurately listed on the PPL as the original traded product, with the booking type specified.
Each Trade Booking Exception must be flagged with the associated Pre-Trade Approval ID in the relevant Trade Capture System (TCS) by the RTD. Trades that are booked in the relevant TCS will feed directly to the central data warehouse (Olympus) from which monthly inventories are autogenerated for all stakeholders to use and for monthly inventory attestations by the Volker Desk Head. Traders must update Pre-trade Approvals if there are any changes to the key information required. At least annually, Pre-Trade Approvals (PTA) in Metro are required to undergo reviews by RTD.
To learn more about the types of Trade Booking Exceptions, please refer to the Trade Booking Exceptions sections of the Pricing and Price Verification Policy and the Markets Valuation Risk Procedures.
To proceed, select each specification to learn about these booking types.
Approximately Loaded Trade: Indicative (Not Fully Modeled)
These are trade bookings that do not model all of the economics of the deal. A Valuation Adjustment may be required to correct the valuation impact of the approximation.
Example: An interest rate swap that is contingent upon the execution of a merger, if the contingent event is not modeled.
Approximately Loaded Trade with Substitutes (Fully Modeled)
These are transactions that are fully booked, but the valuation uses substitute inputs that differ from the terms in the contract. Using substitute inputs results in exposures that are not clearly identified in risk measurement and reporting.
Example: Structured Repo modeled using London Interbank Offered Rate (LIBOR) volatilities instead of repurchase (Repo) volatilities. If the Vega is not reported as Repo Vega, the deal will be classified as ALT.
Risk Modified Trade
These are trades that are adjusted for risk management and valuation purposes. RMTs can be categorized as Parametric RMTs (using model-driven shift) or Non-Parametric RMTs (using the Back-to-Back Booking model). RMTs should be parametrized in the model where possible and these parametric RMTs are exempt from pre-trade approval requirements.
Example: A barrier option or digital option where the barrier has been shifted.
Modular Loaded Trade
These are trades that are fully modeled as an aggregation of simpler deals. MLT valuations and notional may be incorrectly grossed up. Downstream adjustments by Product Control may be required to correct the valuations and notional gross ups.
Example: FX Swap where the near and far legs are booked as two separate deals.
RTDs that have ensured authorization and approval for their pre-approval requests for Trade Booking Exceptions can execute these transactions.
Next, we will examine Model Risk and the actions RTDs must carry out when linking products to models.
RTDs, such as the Firm Account Owner, should determine a plan and take action to remediate any genuine Unapproved Model breaks in UNO.
The Firm Account Owner's supervisor should approve/reject the remediation action(s) in UNO.
Types of Unapproved Model Breaks:
Example: "[NOT APPROVED] Not validated yet".
Example: "Retired".
If you have any questions, please contact *MKTS GLOBAL Model Risk.
RTDs should execute transactions using models in line with permitted PMM combinations and submit change requests through PMM workflows when required.
Firm Account owners should determine a plan and take action to remediate Primary Model and Market Scope breaches in UNO.
The Firm Account owners’ supervisor should approve/reject the remediation action(s) in UNO.
If you have any questions on any of the breaks/breaches reviewed here, please contact *MKTS GLOBAL PMM.
To proceed, select each type to review types of PMM breaks/breaches.
Primary Model (PMM Breach)
The PMM System will look at product ID and model ID(s) stamped on trade and compare them against permissible Primary Models for Master Products.
Model Dependency (PMM Break)
The model string stamped on trade is reconciled with permissible model combinations (derived from the model interconnectivity logic housed in Model Risk Management System (iMRMS)).
Market Scope (PMM Breach)
1. Max Tenor: System will derive tenor using trade maturity and close of business (COB) date and compare that with tenor permission for this Master Product. 2. Currency Pair: Currency pair permissions apply to a limited number of multi-factor FX products.
Model sponsors must:
There is a dedicated Valuation Risk Document Tool (VRDT) accessible through Citi Risk & Controls where VRDs are prepared and stored.
If you have any questions, please contact *MKTS GLOBAL VRD Users.
As we now know, RTDs must execute transactions using models in line with permitted PMM combinations and submit change requests through PMM workflows when required.
Let’s explore the controls RTDs must use when unchanged pricing is noted next.
RTDs that complete unchanged pricing control reviews ensure available market information is reflected. The next stage of the process is for RTDs to oversee the quality and hierarchy of selected vendors, or the collateral valuations of products for which they are the primary market makers.
Let’s take a closer look at collateral and client valuations next.
Distribution of client valuations should be automated through the “Citi Valuations Direct” and “Customer Valuation Pricing System” applications where needed.
Any valuations that need manual intervention must be handled by the Valuation Support team
(*CIB US NA Citi Valuations or *CIB UK EMEA Valuations).
Valuation support will ensure that disclaimers and record retention requirements are adhered to.
Client valuations do not include the pre-trade provision prices to clients as part of the trading process. Derivative valuations must be consistent with Citi's mid-market valuation in books and records.
Non-derivative valuations typically reflect bid valuation unless indicated otherwise.
For more information, please refer to the
Global Collateral, Client Valuation, and Fair Value Disclosures Standard.
RTDs must ensure client valuations are consistent with Citi’s inventory valuations and methodologies. Following this, RTDs can escalate requests for Dispensations and Waivers to the Valuation Risk Procedures to the VRC for approval.
Let’s move to the next topic to find out more.
Here’s a recap of the key actions required by RTDs to ensure compliance with the Markets Valuation Risk Procedure:
Now it’s time to check your understanding of the content by completing a short assessment.
What is the scope of the Valuation Risk Procedures?
Select the best response from the five options and then select Submit.
The Valuation Risk Procedures are required across all three aspects of valuations.
That answer is not correct.
Refer to Valuation Methodologies & Collateral and Client Valuations for more information.
That answer is not correct.
Refer to Valuation Methodologies & Collateral and Client Valuations for more information.
That answer is not correct.
Refer to Valuation Methodologies & Collateral and Client Valuations for more information.
That answer is correct.
The Valuation Risk Procedures are required across all three aspects of valuations.
That answer is not correct.
Refer to Valuation Methodologies & Collateral and Client Valuations for more information.
Who is responsible for overseeing the valuation of a security held as collateral?
Select the best response from the four options and then select Submit.
Market making desks are responsible for overseeing collateral valuations for the products in their Permitted Products Lists (PPL).
That answer is not correct.
Refer to Valuation Methodologies & Collateral and Client Valuations for more information.
That answer is not correct.
Refer to Valuation Methodologies & Collateral and Client Valuations for more information.
That answer is correct.
Market making desks are responsible for overseeing collateral valuations for the products in their Permitted Products Lists (PPL).
That answer is not correct.
Refer to Valuation Methodologies & Collateral and Client Valuations for more information.
Does the following transaction need to be included in the “Trade Booking Exception” inventory?
Trade bookings that do not reflect all of the economics of the deal but are booked on a model that has been approved.
Select the best response from the four options and then select Submit.
Approximately Loaded Trades (ALT) are transactions for which the Risk Taking Desk is unable to capture relevant trade economics using Citi's approved models. These products are booked using approved existing standard models. Valuations Adjustments are sometimes required to compensate for the trade features not supported by the model.
That answer is correct.
Approximately Loaded Trades (ALT) are transactions for which the Risk Taking Desk is unable to capture relevant trade economics using Citi's approved models. These products are booked using approved existing standard models. Valuations Adjustments are sometimes required to compensate for the trade features not supported by the model.
That answer is not correct.
Refer to Trade Booking Exceptions for more information.
That answer is not correct.
Refer to Trade Booking Exceptions for more information.
That answer is not correct.
Refer to Trade Booking Exceptions for more information.
Who is responsible for identifying all trades booked with exceptions?
Select the best response from the five options and then select Submit.
The RTD is responsible for evaluating whether the transactions constitute an Approximately Loaded Trade, Risk Modified Trade, or Modular Loaded Trade.
The RTD will maintain a relevant inventory of transactions, as well as adhere to the controls required by the Pricing and Price Verification Policy.
That answer is not correct.
Refer to Trade Booking Exceptions for more information.
That answer is not correct.
Refer to Trade Booking Exceptions for more information.
That answer is correct.
The RTD is responsible for evaluating whether the transactions constitute an Approximately Loaded Trade, Risk Modified Trade, or Modular Loaded Trade.
The RTD will maintain a relevant inventory of transactions, as well as adhere to the controls required by the Pricing and Price Verification Policy.
That answer is not correct.
Refer to Trade Booking Exceptions for more information.
That answer is not correct.
Refer to Trade Booking Exceptions for more information.
What is key to ensuring Valuation Risk documents are properly maintained?
Select the best response from the five options and then select Submit.
All of the above are imperative to ensure Valuation Risk documents are accurate and maintain an up-to-date repository.
That answer is not correct.
Refer to Trade Booking Exceptions & Valuation Risk Documents for more information.
That answer is not correct.
Refer to Trade Booking Exceptions & Valuation Risk Documents for more information.
That answer is not correct.
Refer to Trade Booking Exceptions & Valuation Risk Documents for more information.
That answer is correct.
All of the above are imperative to ensure Valuation Risk documents are accurate and maintain an up-to-date repository.
That answer is not correct.
Refer to Trade Booking Exceptions & Valuation Risk Documents for more information.
If an Unapproved Model alert is deemed to be genuine, who is responsible for reviewing the actions taken by the Firm Account Owner and approving or rejecting the remediation actions via the supervisory platform (UNO)?
Select the best response from the three options and then select Submit.
If an Unapproved Model alert is deemed to be genuine, it is assigned to the relevant Firm Account Owner for remediation. The Firm Account Owner's supervisor is responsible for reviewing the actions taken by the Firm Account Owner and approving or rejecting the remediation actions.
That answer is not correct.
Refer to Model Risk for more information.
That answer is not correct.
Refer to Model Risk for more information.
That answer is correct.
If an Unapproved Model alert is deemed to be genuine, it is assigned to the relevant Firm Account Owner for remediation. The Firm Account Owner's supervisor is responsible for reviewing the actions taken by the Firm Account Owner and approving or rejecting the remediation actions.
Who is responsible for implementing Unchanged Pricing Control over inputs used for valuations of market making products in their Permitted Product Lists?
Select the best response from the four options and then select Submit.
The primary market making desk is tasked with implementing controls over inputs used for valuations of market making products in their Permitted Products Lists.
That answer is correct.
The primary market making desk is tasked with implementing controls over inputs used for valuations of market making products in their Permitted Products Lists.
That answer is not correct.
Refer to Unchanged Pricing Controls for more information.
That answer is not correct.
Refer to Unchanged Pricing Controls for more information.
That answer is not correct.
Refer to Unchanged Pricing Controls for more information.
If the models stamped to a trade do not include a permitted primary model (per PMM Permission) for the Master Product in question, what break type would this fall under?
Select the best response from the three options and then select Submit.
The PMM System will look at product ID and model ID(s) stamped on the trade and compare them against permissible primary models for Master Products. If none of the models stamped to the trade is a permissible primary model for that Master Product, a Primary Model break would arise.
That answer is correct.
The PMM System will look at product ID and model ID(s) stamped on the trade and compare them against permissible primary models for Master Products. If none of the models stamped to the trade is a permissible primary model for that Master Product, a Primary Model break would arise.
That answer is not correct.
Refer to Model Risk for more information.
That answer is not correct.
Refer to Model Risk for more information.
Which of the following categories of transactions are exempt from pre-trade approval requirements?
Select the best response from the four options and then select Submit.
Parametric RMTs use models designed to dynamically incorporate risk modifications into trade bookings, valuations, and risk metrics via the use of parameter settings. RMTs should be parametrized in the model where possible. Parametric RMTs are exempt from pre-trade approval requirements.
That answer is not correct.
Refer to Trade Booking Exceptions for more information.
That answer is correct.
Parametric RMTs use models designed to dynamically incorporate risk modifications into trade bookings, valuations, and risk metrics via the use of parameter settings. RMTs should be parametrized in the model where possible. Parametric RMTs are exempt from pre-trade approval requirements.
That answer is not correct.
Refer to Trade Booking Exceptions for more information.
That answer is not correct.
Refer to Trade Booking Exceptions for more information.
Which of the following is accountable for ensuring consistent valuations of financial instruments applicable to Markets and reports to the Markets Business Risk and Control Committee?
Select the best response from the three options and then select Submit.
The Valuation Risk Council (VRC) is accountable for ensuring consistent valuations of financial instruments applicable to Markets and reports to the Markets Business Risk and Control Committee (BRCC).
That answer is not correct.
Refer to Governance and Reporting for more information.
That answer is not correct.
Refer to Governance and Reporting for more information.
That answer is correct.
The Valuation Risk Council (VRC) is accountable for ensuring consistent valuations of financial instruments applicable to Markets and reports to the Markets Business Risk and Control Committee (BRCC).
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