Equity Derivatives and Structured Products Glossary: Operational risk


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Operational risk

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Operational risk

Operational risk

The Risk run by a firm that its internal practices, policies and systems are not rigorous or sophisticated enough to cope with untoward market conditions or human or technological errors. Although operational Risk is not as easy to identify or quantify as market or Credit risk, it has been implicated as a major factor in many of the highly-publicised derivatives losses of recent years. Sources of operational Risk include: failure to correctly measure or report Risk; lack of controls to prevent unauthorised or inappropriate transactions being made (the so-called ‘rogue trader’ syndrome); and lack of understanding or awareness among key staff.

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