NIBA will be featuring a recurring article in its monthly newsletter to membership with a focus on FCM Risk Management. The article will feature a different Member FCM each month discussing their approach to risk management.
FCM Name: Wedbush Futures
Head of Risk Name: Jim Kearney
Do you have a risk committee: Yes
If yes, what matters does your risk committee consider:
The Wedbush Futures Risk Committee regularly meets to identify current risk events, define appropriate client and firm limits and mitigate the effect of future risk events on capital deposits.
What is your general approach to risk management:
Our risk management philosophy encompasses three concepts, identify risk, measure risk and manage risk. Every policy, procedure and process is designed to advance this philosophy. We strive to build a best in class risk management structure in all of our lines of business.
How is pre-trade risk management handled:
All of our clients that trade electronically must use systems that utilize pre-execution risk management features. These features include maximum order size, messaging thresholds, buying power and more.
What additional procedures are in place for large traders:
Our larger traders are subject not only to our limits, but regulatory position limits. There may be additional reporting requirements for large traders.
Do you have a policy on auto-liquidation of accounts at risk of debit:
Some of our products do include an auto-liquidation feature. Limits and thresholds in these products are clearly communicated to our clients.
What risk parameters/procedures are in place for extreme market volatility i.e. recent Swiss Franc:
Scenario based risk and firm/client level stress runs are an integral part of the risk process at Wedbush. We not only have a team dedicated to monitoring risk, but many more sets of eyes monitoring client communications and market movements. Product concentrations are identified on a real time basis.
How do the new CFTC margining rules (1.22) affect your approach on risk management:
Wedbush has updated its margin policy as a result of these new guidelines. Although the regulatory landscape continues to change, our dedication to protect client funds has never been questioned. No client has ever been denied access to excess account capital.
What do you see as the largest risk to the industry in general:
The regulatory environment has changed dramatically over the past 2 years. The changes currently being debated predict further changes coming. We are properly prepared to meet these changes.
Do all accounts on your book go through a formal credit review:
Yes, all accounts go through an extended review that includes a number of verification steps. After this initial review, we conduct ongoing reviews of credit and other relevant categories.
Are you concerned about any other new or upcoming regulations that may affect the way your firm does business or handles risk management:
We continually discuss the effect of current and pending regulatory changes. As these changes approach implementation, we are prepared to inform our clients.
Please describe your cyber security policy and how risk is managed:
We have several layers of checks and balances. Account inquiries and requests travel through a series of groups that have unique perspectives and missions, with the overarching goal of information security and capital protections.
