What is market risk and what do market risk professionals do?

Market risk (or systemic risk) refers to factors that may impact the performance of the entire market simultaneously. Sources of market risk include recessions, political turmoil, natural disasters & terrorist attacks and can result in changes to interest rates, exchange rates and stock prices

A market risk professional is traditionally considered to work in the middle office of a bank. They have responsibility for identifying, measuring and reporting market risks, and help to manage the risk of loss of earnings by analysing market movements and their impact on an investment portfolio. market risk professionals will be involved in the development and improvement of risk measurement methodologies, models, processes and procedures and have close daily interaction with the front office.

The more senior role of risk manager is also tasked with agreeing risk limit frameworks for each desk that are aligned to the business strategy and the risk appetite of the firm. They monitor the exposures of each desk on a daily basis, liaise with desk heads regarding any limit breaches and agree any remediation required.

Key responsibilities

Responsibilities will vary, but examples include:

  • Identifying, monitoring and managing all market related risks across the trading desks.
  • Distributing timely and accurate risk reports to traders and senior management with explanation of significant moves in risk exposures
  • Recommending market risk limits for the desks (within market risk appetite) and seeking approval at executive risk committee
  • Developing and regularly reviewing the market risk stress testing framework for all trading desks.
  • Quantitatively analysing new deals and identifying risks using simulation based modelling and other techniques.
  • Liaising with trading desks with respect to exposures, new business and market activity.
  • Establishing a strong risk presence and promoting risk discussion on the trading floor.
  • Driving reviews of, and delivering improvements to, market risk processes, models and methodologies.
  • Maintaining strong knowledge of trading portfolios and keeping abreast of market developments.
  • Ensuring internal and external governance policies are being applied appropriately.

Why are they important?

Market risk professionals use their experience and knowledge of the markets to research, model and analyse the risks faced by the organisation. They are instrumental in the process of managing these risks and are highly valued for their modelling skills, judgement and unique market knowledge.

Skills needed for this role

Market risk professionals must be highly analytical, with superb problem-solving skills. They should also be able to multitask effectively in order to deliver to tight deadlines within a high-volume, complex and ever-changing environment. Excellent interpersonal and influencing skills are essential, as well as strong written and verbal communication skills. Professionals in this field are required to have a high attention to detail.

Strategic Professional Options examinations linked to this role

Advanced Financial Management

Career opportunities presented by this role

Market risk professionals are employed by any company or financial institution that is exposed to systemic and market risk. There are opportunities in earlier career stages to move between specialisms, however, professionals in this field are highly valued for their experience and specific market knowledge. Career trajectories are well established with entry level analyst roles progressing through to manager and director level.

Competencies

High level competencies required include:

  • Data, digital and technology

    A. Identifies strategic options to add value, using data and technology.

    B. Analyses and evaluates data using appropriate technologies and tools.

    C. Applies technologies to visualise data clearly and effectively.

    D. Applies scepticism and ethical judgement to the use of data and data technology.

  • Financial management

    A. Links developments in global trade, markets, business practices and the economic environment to required improvements in the financial and risk management of an organisation.

    B. Advises on business asset valuations, capital projects and investments using appropriate analytical qualitative and quantitative techniques.

    C. Identifies, evaluates and advises on alternative sources of business finance and different ways of raising finance.

    D. Communicates and advises on the impact on financial decision making on current developments in regulation, governance and ethics.

    E. Assesses and advises on appropriate strategies to manage business and organisational performance regarding business and finance risk and effectively communicates the impact.

  • Governance, risk and control

    A. Evaluates organisational structures and governance to protect the long-term interests of stakeholders.

    B. Recommends appropriate strategies to ensure adherence to governance structures and application of best practice internal controls.

    C. Identifies and manages risk appropriately.

    D. Uses risk management for the best interests of an organisation and its stakeholders.

    E. Monitors and applies relevant legislation, policies and procedures.
     

  • Stakeholder relationship management

    A. Positively develops relationships with internal and external stakeholders.

    B. Communicates and gains commitment from internal and external stakeholder.

    C. Uses emerging technologies to collaborate and communicate effectively with stakeholders.

    D. Applies professional and ethical judgement when engaging with stakeholders.

    E. Aligns organisational strategic objectives with stakeholder needs and manages expectations.