Tecnologías de E/S de residuos que contienen metales

MODEL Human resources Process management System management Theft and fraud Disaster Compliance Legal Strategic Reputation Market Liquidity Credit, concentration and counterparty BUSIN_ES S R IS K O P E R A T IO N AL R IS K FINA NCIA L R IS K FIGURE 50

Value at risk

The Caisse measures market risk using a statistical technique known as value at risk (VaR). This technique, used by most investment firms and financial institutions, covers almost all the assets held by the Caisse. The Caisse determines the VaR for each instrument in its specialized portfolios and aggregates the infor- mation for the overall portfolio. Two types of risk are assessed, namely the absolute VaR of the Caisse’s benchmark portfolio and overall portfolio, and the VaR of active management.

VaR is based on the statistical measurement of volatility of the market value of each portfolio position and their correlations. VaR uses historical data to estimate the loss expected during a given period according to a predetermined confidence level. For example, using a 99% confidence level, the VaR indicates the maximum loss estimated in 99% of cases for a given period.

One of the advantages of VaR is that it includes the risk of a wide range of investments in a single measurement, thereby providing an overall risk measurement for a portfolio and even for a set of portfolios.

The Caisse uses the historical simulation approach to assess VaR. The historical simulation method is based primarily on the assumption that the future will be similar to the past. This method requires a series of historical data for all the risk factors required to assess the returns on instruments. In the absence of such historical data, particularly for less liquid products, such as private equity and real estate, substitute securities and various mathematical models are used to calculate VaR. Historical data from 1,300 days of obser- vation of risk factors such as variations in exchange rates, interest rates and financial asset prices, is used to assess the volatility of returns and the correlation between returns of various assets. VaR measures risk under normal market conditions. Therefore, losses realized may greatly differ from the VaR when the historically observed interrelationship between risk factors is disrupted. As VaR is not designed to be used on its own, the Caisse uses comple- mentary limits and measurements. For example, the investment policies are used to define concentration limits (geographic, sector, instrument type, issuer, etc.) as well as loss limits.

Stress tests

The Caisse also uses stress tests to assess the losses of a specialized portfolio and the overall portfolio in extreme circum- stances. The stress test is a risk measurement that complements VaR by estimating the impact of extreme circumstances on returns. These circumstances have a low probability of occurring but are likely to give rise to substantial losses. Using different types of extreme scenarios, the stress test measures the loss of value of a position following a variation in one or more usually interrelated risk factors such as equity prices, interest rates, credit spreads, foreign exchange rates, commodity prices and market volatility.

Like VaR, the stress test includes the risk of many positions in a single overall measurement, making it possible to analyze losses for a portfolio or for a set of portfolios, under selected extreme scenarios.

Credit, concentration and counterparty risk

Credit risk

Credit risk is the possibility of a loss of market value in the event a borrower, an endorser, a guarantor or counterparty does not honour its obligation to repay a loan or to fulfill any other financial obligation, or experiences a deterioration of its financial situation.

Credit risk analysis includes calculating the probability of default and the recovery rate on debt securities held by the Caisse, as well as monitoring changes in credit quality of issuers and groups of issuers1 _{whose securities are held in any of the Caisse’s}

portfolios.

In managing credit risk, the Caisse frequently monitors changes in the ratings issued by agencies and compares them with in-house credit ratings, whenever available.

Concentration risk

Concentration risk analysis measures the fair value of all the financial products related to a single issuer or a group of issuers1

with similar characteristics (geographical area, industry, credit rating).

The concentration limit by group of issuers is set at 3% of the Caisse’s total assets. Securities issued by the Government of Canada, the Québec government or any other Canadian province or territory or by their ministries or departments and agencies are exempt from this calculation as they are not subject to concen- tration limits.

Sovereign issuers with AAA credit ratings are also excluded from this concentration limit. However, concentration limits are set for more specific issuer characteristics. Last, specific concentration limits apply to investments in emerging markets.

A group of issuers is controlled by a parent company. 1.

Counterparty risk

Counterparty risk is the credit risk from current or potential exposure to over-the-counter derivatives resulting from the Caisse’s operations.

Transactions involving derivatives are carried out with financial institutions whose credit rating is established by recognized rating agencies and for which operational limits are set by senior management. Moreover, the Caisse enters into legal agreements based on the standards of the ISDA1 _{to benefit from the netting}

of amounts at risk and the exchange of collateral. In this way, the Caisse limits its net exposure to this credit risk.

Current exposure to counterparty risk is measured daily, under the legal agreement in effect.

Financing liquidity risk

Financing liquidity risk is the possibility that the Caisse may not always be able to fulfill its commitments regarding its financial liabilities without having to obtain funds at abnormally high cost or having to sell assets. It also corresponds to the risk that it may not be possible to sell investments rapidly or to invest without having a significant adverse impact on the price of the investment in question.

Compliance with preset rules is reviewed every month, in addition to the daily monitoring of liquidity. The Caisse simulates various scenarios to estimate the potential impact of different events on its liquidity situation. The managers responsible assess the liquidity of the markets on which the Caisse’s financing operations are based. They also ensure the Caisse is active in various financial markets and maintains relationships with credit rating agencies that rate the Caisse as well as capital providers.

Absolute risk and active risk

Any investment decision involves an element of risk, including the risk of a gain or loss arising from a fluctuation in the value of financial instruments held in a portfolio.

The same method is used to calculate the absolute risk of the Caisse’s benchmark portfolio and overall portfolio.

The absolute risk of the benchmark portfolio is the result of the risk of the benchmark indexes related to the assets that make up the portfolio at a given date. For example, if the depositors decide to increase the bond weighting and reduce the weighting of publicly traded equities in their respective benchmark portfolios, the risk will automatically decrease, given the lower volatility of bonds. By the same token, the expected long-term absolute return will also decrease.

The absolute risk of the overall portfolio is the result of the risk of the positions that make up the Caisse’s overall portfolio at a given date.

Active risk represents the possibility that the Caisse’s return will diverge from the benchmark portfolio return due to active management of its portfolio. The greater the active risk, the more the overall portfolio’s expected absolute return will diverge from the benchmark portfolio return.

The absolute risk of the Caisse’s benchmark portfolio and the active risk and the absolute risk of the overall portfolio are measured regularly and are subject to various limits.

Figure 51 shows the components of the Caisse’s risk and return.

Operational risks

Operational risk corresponds to the possibility of direct or indirect financial loss resulting from the deficiency of operations.

Operational risk management and assessment require the self- assessment of risks, listings of incidents, the use of indicators and maintenance of rigorous processes. The Caisse continues to introduce methods to assess and manage operational risks.

The ISDA promotes sound risk management practices and issues legal opinions on netting and collateral arrangements. 1.

Human resources management risk

The risk related to human resources management includes such elements as recruiting (recruiting competent, honest and motivated personnel), training (maintaining and developing employees compe- tencies) and evaluating performance and compensation (ensuring fair, equitable and competitive compensation).

Process management risk

The risk arising from process management is related to the processes for input, settlement and tracking of transactions, and errors that may arise in the execution of the processes in place. In addition to internal causes, this risk may arise from the poor quality of services rendered by subcontractors, suppliers and business partners.

System management risk

The Caisse is exposed to a risk in the event of deficiency of its information technology infrastructures or computer systems. This deficiency may result from a breakdown or other malfunction that may cause delays or an interruption in operations that is not caused by a disaster.

Theft and fraud risk

This is the risk of losses arising from intentional acts to defraud, to embezzle funds or to appropriate the assets of the Caisse or its depositors.

Disaster risk

The risk of disaster represents the risk of losses resulting from the interruption of business following a natural or other disaster.

Compliance risk

Compliance risk corresponds to the risk of losses as a result of non-compliance with regulatory obligations, with policies and directives, or with professional and ethical standards and practices specific to the Caisse’s operations. It occurs in the event that the Caisse fails to fulfill its duties.

Legal risk

Legal risk is related to the rights and obligations associated with the Caisse’s operations and the legislative framework under which they are carried out. Important aspects of legal risk are related to compliance with laws and regulations to which the Caisse and its management teams are subject. They also depend on the assurance that the agreements entered into by the Caisse accur- ately reflect the planned transactions and contains the appropriate provisions. Legal risk also refers to the risk of lawsuits that may affect the Caisse.