What is the standard structure of dealing operations in a commercial bank?


A standard structure of the dealing operations in a commercial bank involves three
Front Office: It is manned by dealers who represent the bank in all market operations at
both retail and wholesale levels. They therefore function as the ‘face’ of the bank in the
market. All dealing operations take place in this compartment.
Mid office: This section deals with the risk management function. The parameters for
evaluating and controlling risks are established by this section. Every transaction
undertaken by a dealer is recorded in a ‘Deal Slip’ which provides all particulars of the
transaction. Each deal slip is processed in this section to ensure adherence to all risk
control limits specified by the management. These control limits include:
– Limits on intra-day open position in each currency called ‘Daylight limits’. (Exposure
– Limits on overnight open positions in each currency (lower than intra-day) called
‘Overnight limits’. (Exposure control)
– Limits on aggregate open position for all currencies. (Exposure control)
– Stop-loss limits. (For each currency) (Control over loss)
– A turnover limit on daily transaction volume for all currencies. (Control of overtrading)
– Deal Size limits. (Distribution of Risk)
– Country-wise exposure limits. (Control of Market Risk)
– Broker-wise business limits. (Control of Operational Risk)
– Counterparty limits. (Control of Credit Risk)
– Forward settlement date-wise limits. (Control of Settlement Risk)
– Currency-wise Individual Gap Limits (IGL’s)- (Control of Maturity Risk / Interest Rate
– Currency-wise Aggregate Gap Limits (AGL’s)- (Control of Maturity Risk / Interest
Rate Risk)
The Mid Office therefore represents the Risk Management hub of all dealing operations. It
provides a constant flow of market information to the dealers.
Back office: Takes care of processing deals, maintaining mirror accounts for nostro
accounts reconciliation, recording of utilization of forward contracts by customers,
recovering overdue interest, preparing returns to be submitted to RBI, etc. It represents the
administrative hub of all dealing operations.


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