The Hierarchy of Treasury Limits

For monitoring market risk, the company will need to segment the overall investment portfolio. They may for instance segment the portfolio by product, then trading desk, then trades. For each segment of the portfolio limits will be defined. Generally, limits increase as you move up in the hierarchy. For example market risk hierarchy may be established as depicted below. A risk metric is selected (duration, VaR, etc) and risk limits are specified for each component of the hierarchy based on this metric.


When the stop loss limit is breached the investment will be liquidated as soon as possible. Any exception to this process should be approved at the right authority level within the risk management division. This exception approval hierarchy will generally be based on absolute dollar/dirham amount of loss that can be booked on a position before it should be cut, and will be suggested by the risk management group and approved by the Board Risk Committee.