Internal Control Questionnaires and Verification Procedures

Price Risk

1. Have the board and management established price risk policies and procedures for derivatives that:

   1. Establish price risk limits?

   2. Require periodic review of price risk exposure?

   3. Describe the method used to calculate price risk exposure?

   4. Describe the acceptable process for market valuation?

   5. Require independent validation of price risk models?

   6. Require periodic stress testing?

   7. Require periodic back-testing of price risk models?

   8. Address reporting and control of off-market trades, if permitted?

   9. Require annual board approval?

2. Does the price risk limit management policy ensure:

   1. Preparation and distribution of position reports by an independent party, without intervention by the trader or risk-taking unit?

   2. Timely notification of actual or probable limit exceptions?

   3. Prompt consideration of all limit exception requests (generally, approvals should be obtained from the next higher level of management)?

   4. Monitoring and tracking of limit breaks and exception approvals?

Previous: Senior Management and Board Oversight Next: Liquidity Risk