Conservative and Front loading: Difference between pages

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''Risk appetite and risk budgeting''.
Front loading as applied to derivatives is a term that describes the obligation to clear centrally an [[OTC]] [[derivative instrument]] or contract that is applied retrospectively.


Conservative financial and operational strategies are those in which only the lowest levels of risk are acceptable.
It arises because there is a gap between the time that a [[CCP]] is authorised under [[EMIR]] and [[ESMA]]’s decision to mandate [[central clearing]] of certain derivatives.  During the early implementation stages of EMIR and the clearing obligation it may not be known at the time of executing a derivative trade whether it ultimately will be subject to frontloading or not.


The primary idea is to exercise caution in investment strategies by protecting all owned assets without any value loss, and to seek enhancement in their value only when this is assured.  
It is not known at the outset whether to price the transaction on the assumption that it will, or will not, be subject to central clearing during the life of the transaction.  


Commonly observed in many public institutions and several established businesses. Links in terms of corporate culture for example, to Deal & Kennedy’s Slow feedback/low risk, process culture.


==See also==
[[Central clearing]]


Examples include:
*Lending only to the very strongest credits, with substantial collateral.
*Using very little debt, or no debt, in the corporate capital structure.
*Maintaining large reserves and large amounts of high quality liquid assets.
*Hedging a high proportion of, or all, material financial risks.


 
===Other links===
Also known as 'prudent'.
[http://regtechfs.com/clearing-and-present-danger-nasdaq-omxs-emir-ccp-authorisation/ Clear(ing) and present danger] ''www.regtechfs.com''
 
 
== See also ==
* [[Aggressive]]
* [[Collateral]]
* [[Guide to risk management]]
* [[Enterprise risk management]]
* [[Hedging]]
* [[Prudence]]
* [[Reserves]]
* [[Rewarded risk]]
* [[Risk appetite]]
* [[Risk averse]]
* [[Risk budget]]
* [[Risk management]]
* [[Guide to risk management]]
* [[Optimal capital structure]]
* [[Risk policy]]
* [[Risk register]]
* [[Risk tolerance]]
 
 
==Other resource==
[http://www.theirm.org/knowledge-and-resources/thought-leadership/risk-appetite-and-tolerance/ Risk appetite and risk tolerance: Practical guidance], www.theirm.org
 
[[Category:Identify_and_assess_risks]]
[[Category:Risk_frameworks]]

Revision as of 14:33, 13 May 2016

Front loading as applied to derivatives is a term that describes the obligation to clear centrally an OTC derivative instrument or contract that is applied retrospectively.

It arises because there is a gap between the time that a CCP is authorised under EMIR and ESMA’s decision to mandate central clearing of certain derivatives. During the early implementation stages of EMIR and the clearing obligation it may not be known at the time of executing a derivative trade whether it ultimately will be subject to frontloading or not.

It is not known at the outset whether to price the transaction on the assumption that it will, or will not, be subject to central clearing during the life of the transaction.


See also

Central clearing


Other links

Clear(ing) and present danger www.regtechfs.com

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