University of Virginia Library

VI. Policy Controls

Purpose

• 1. To identify operating controls related to trading, authorizing, confirming, and accounting for transactions.


• 2. To identify exposure controls in place to keep the University from being overexposed to certain market risks.

The University has established both operating and exposure controls to address program risks.

Operating Controls

When utilizing derivatives, it is important for operating controls to be in place to provide for adequate segregation of duties and management oversight. The University has controls addressing trade initiation, approval, confirmation, and accounting.

Appendix A to this policy lists the individuals who may enter into derivatives on behalf of the University. These individuals may not approve their own transactions, unless explicitly stated in Appendix A. Initiators may not confirm transactions with counterparties and may not enter the accounting related to a trade. These controls are in place to assure trades are fully disclosed, accounted for, and approved by appropriate parties.

Appendix A also contains a list of individuals with authority to approve transactions. In all instances, unless provided for in Appendix A, an approver may not also be the initiator for a specific transaction. Confirmations serve the purpose of confirming the details of a trade as understood by the University and its counterparty. Trade confirmations are done by an individual who does not have authority to either initiate or approve transactions.

Transactions are recorded for accounting purposes by an individual who is neither the initiator nor approver. This segregation helps to assure that trades are accounted for correctly and are recorded and valued correctly on an ongoing basis.

Exposure Controls

The University manages its derivatives exposure by looking at its derivatives portfolio independently and also in the context of its overall asset and liability portfolios. Prior to entering into a derivative transaction, the University will examine the impact of such trade independently and on the asset and liability portfolios as a whole.

Appendix B to the policy establishes limits related to counterparty credit ratings, and the maximum allowable percentage of floating rate debt.

Exposure controls are in place to limit the University’s exposure to the various market risks associated with derivatives.