Société Générale / Risk report 2021 - Pillar 3 2020

9 MARKET RISK MARKET RISK MONITORING PROCESS | SOCIETE GENERALE GROUP | PILLAR 3 - 2021 173 MARKET RISKMONITORING PROCESS 9.2 Market risk appetite The business development strategy of the Group for market activities is primarily focused on meeting client needs, with a full range of products and solutions. The risk resulting from these market activities is strictly managed through a set of limits for several indicators: the Value-at-Risk (VaR) and stressed Value-at-Risk (SVaR): these p global indicators are used for market risk calculations for RWA and for the day-to-day monitoring of the market risks incurred by the Group within the scope of its trading activities; stress test measurements, based on decennial shock-type p indicators, which make it possible to restrict the Group’s exposure to systemic risk and exceptional market shocks. These measurements can be global, multi-risk factor (based on historic or hypothetical scenarios), by activity or risk factor in order to take into account extreme risks on a specific market, or event-driven, to temporarily monitor a particular situation; sensitivity and nominal indicators used to manage the size of p positions: sensitivities are used to monitor the risk incurred locally on a - given type of position ( e.g. sensitivity of an option to changes in the underlying asset), while nominal indicators are used for significant positions in - terms of risk; additional indicators such as concentration risk or holding period, p maximummaturity, etc. The Market Risk Department is responsible for the assessment and validation of the limit requests submitted by the different business lines. These limits ensure that the Group complies with the market risk appetite approved by the Board of Directors, further to a proposal from General Management (1) . Determining andmonitoring limits The choice and calibration of these limits ensure the operational transposition of the Group’s market risk appetite through its organisation: these limits are allocated at various levels of the Group’s structure p and/or by risk factor; their calibration is determined using a detailed analysis of the risks p related to the portfolio managed. This analysis may include various elements such as market conditions, specifically liquidity, position maneuverability, risk/rewards analysis, etc.; regular reviews make it possible to manage risks according to the p prevailing market conditions; specific limits, or even bans, may be put in place to manage risks for p which the Group has little or no risk appetite. The desk mandates and Group policies stipulate that traders must have a sound and prudent management of positions and must respect the defined frameworks. The limits set for each activity are monitored daily by the Market Risk Department. This continuous monitoring of the market risk profile is the object of regular discussions between the risk and business teams, further to which various risk hedging or mitigation initiatives may be taken by the Front Office in order to remain within the defined limits. In the event of a breach of the risk framework, the front office must detail the reasons, and take the necessary measures to return within the defined framework, or otherwise request a temporary or permanent increase of limit if the clients requests and if market conditions justify such a course of action. In addition to the governance structure in place between the various departments of the Risk function and business lines, the monitoring of limits usage, due to the products/solutions provided to clients and the market-making activities, also contributes to ensuring that market risk to which the Group is exposed are properly managed and understood. See “Risk Appetite” section for the detailed description of the governance and implementation of the risk appetite, as well as the role the Risk Division plays in defining it. (1)