A stable, well-functioning financial market for allA stable, well-functioning financial market for allTrading activities in banks and investment firms
According to Finansinspektionen’s investigation, eight scrutinised banks and investment firms primarily have good routines for managing and appraising the trading risks for products that are difficult to assess. However, more can be done in some areas. The undertakings should improve their routines for independent assessment and control of traders’ prices. Some of the undertakings should allocate more resources for their risk control in order to attain a stronger position in terms of business.
FI will take the following measures
We are going to follow up how the undertakings work with these issues. We are continually monitoring the product development and changes in trade volumes and trade patterns.
The investigation
Based on FI's general guidelines on the management of market risks, we have scrutinised the management and valuation of complex products at eight undertakings with extensive trading for their own account (trading). These include HQ bank, Kaupthing Bank (Sweden), Nordea, Erik Penser Fondkommission, SEB, Svenska Handelsbanken, Swedbank and Öhman Fondkommission. Complex products in this investigation refer to financial instruments for which the market value is unknown or the undertaking feels that they are not true and fair so theoretical models for valuation are used instead.
The background of the investigation is that FI has noted that the trading of more complex products has increased in volume and that the products to a growing extent have become more difficult to valuate. The investigation shows, however, that the extent of this trading is of minor significance in relation to the balance sheet total.
The exposures mainly consist of options with long durations, equity-linked bonds and similar products. The big banks have issued these in their own name while other undertakings act as intermediaries for other borrowers' products. The commission revenues for equity-linked bonds are substantial. All the undertakings included in the investigation buy back equity-linked bonds when the customers request it. For some undertakings, stock after such buy-backs and/or trading in options with long durations can provide positions equivalent to up to 10 per cent of the balance sheet total. For the other undertakings in the investigation, the positions measured in the same manner are very small.
