How the Programme Runs
This section sets out how a dynamic hedging programme is established, decided and executed: the framework used to build it, the weekly process that adjusts it, and the daily workflow that executes and reconciles every trade. Each is described as it operates.
"Every budget rests on an assumed price. Hedging secures it. Without it, global markets set the price for you."
Dynamic Hedging Framework
Setting the Stage for Success
Tactical Decision Framework
Your Path to Risk Management Excellence
How Decisions Are Made
Joint Decisions
Decisions are taken jointly by the manager and the client execution team. Neither side acts alone.
Full Cycle Coverage
Monitoring, management and execution span the global trading cycle, from the Asian open to the New York close.
Weekly Committee
The joint risk management committee meets weekly to review the position and authorise forward hedging parameters.
Tactical Decision Making
Each week the committee sets the hedge ratio, instrument selection, option strike levels and execution parameters for the period ahead.
What the Weekly Review Covers
Market Developments
Macroeconomic data, central bank policy and geopolitical developments, assessed for effect on the exposure.
Supply and Demand
Physical supply and demand conditions in the relevant commodities and currencies.
Hedge Ratio
Whether the rolling twelve month ratio should be raised or reduced.
Timing of Cover
Whether cover should be front or back loaded given current pricing and market conditions.
Instrument Selection
Which instruments to use, whether swaps, vanilla options, collars or seagulls, given the cost of optionality at the time.
Execution
How and with which counterparty the trade should be placed.
The Daily Execution Cycle
Nine steps from authorisation to settlement
PEA Approval (Pre-Execution Authorisation)
Before execution, the Pre-Execution Authorisation (PEA) is prepared by the Execution Team and carefully reviewed and approved by the Authorised Officers to ensure compliance with predefined risk thresholds and Hedge Policy.
Approval Confirmation
Confirmations of approvals are obtained to validate compliance with risk management guidelines.
Cross Check Order Details
Order details are cross-checked for accuracy and alignment with the approved parameters.
Execute Order
The joint Execution Team executes hedge transactions.
Trade Confirmation (Part 1)
Trade confirmations are generated by the counterparty bank and verified by the Execution Team as the first part of the transaction confirmation process.
Update Hedge Book
Real-time updates to the Hedge Book are maintained, including tracking total exposure.
Trade Confirmation (Part 2)
The second part of the trade confirmation is completed once the daily bank statements are received, ensuring all transaction details are accurately recorded.
Reconciliation & Record Keeping
Comprehensive reconciliation and meticulous record-keeping practices are maintained to ensure transparency and compliance.
Swap & Option Settlements
Settlements for swaps and options are executed following the agreed-upon terms at expiry.
Analytics, Reporting and Oversight
The infrastructure behind the programme
Risk Analytics
Data Driven Decisions
Comprised of our Chief Analyst, Risk Manager and through the use of sophisticated risk management systems, our team works to deliver the insights and data-driven decisions to maximise your financial stability. Our dedicated team provides ongoing risk analysis including:
Comprehensive Insights
We generate broad based risk analytics, covering crucial metrics such as Value at Risk (VaR), scenario stress tests, optimum hedge structure modelling and more. Our thorough assessment of your exposure gives us the insights to build a suitable programme.
Model Maintenance
Our experts maintain models to ensure your hedge book structure aligns with our objective of achieving a maximum 70-70% protection/participation ratio.
Accuracy First
We place a premium on precision. Our team ensures that all positions are correctly reconciled daily, every counterparty instrument is cross checked for accuracy, leaving no room for discrepancies or errors.
Risk Reporting
Delivering Insights
Our Risk Reporting team comprises Portfolio Managers, Risk Managers, and Analysts.
Understanding Financial Landscapes
Our team carefully review daily risk reports to understand your unique financial needs and provide timely insights.
Maintaining Accuracy
Ensuring the integrity of your financial data is of the highest level of importance. Understanding and solving any inaccuracies is immediate.
Performance Guidance
Our team reports performance metrics in a clear and easy to understand manner in order to track the performance of the hedging programme.
Assessment of Hedge Book
This is an ongoing commitment to test and question the structure of the hedge book against market volatility. Reported Daily.
Risk Management Committee
Ensuring Your Programme is Successful
The Risk Management Committee consists of the client (Executive Team members or Board) and our Global Head of Portfolio & Risk Management, and the Joint Execution team.
Policy Responsibility
The Committee defines and reviews the client Hedge Policy on a weekly basis. It also reviews risk reports and the Hedge Book structure, ensuring alignment with the client risk objectives.
Strategic Initiatives
The Committee drives the risk mitigation strategies, continually shaping and refining them to adapt to the dynamic financial landscape.
Refining and Rebalancing
Every week, the committee reviews and authorizes refinements to the Hedge Book. This can involve re-balancing the hedge ratio, amending instrument choices, changing limit prices, and strategically front/back loading hedges.
Final Authorisation
The Committee is responsible for pre-trade execution. Decisions that affect the hedge book remains with the risk management committee and must be authorised before actioned by the Joint Execution team.