The Financial Risk Mitigation Senior Task Force was created as a result of a specific default in the Financial Transmission Rights Market, but the results of its work are expected to benefit all of PJM’s markets, PJM’s new chief risk officer said yesterday.
Nigeria Poole Bloczynski, who filled the recently created chief risk officer position last month, told the task force Wednesday that she will be guiding a holistic approach to credit risk management.
“While there’s some low-hanging fruit, what I want to do is take a very thoughtful approach as it comes to pulling together the credit-risk policy, because I think we can tackle some issues that not only relate to FTRs, but to the broader market that we participate in,” she said.
Bloczynski was introduced at the meeting by PJM Interim President and CEO Susan J. Riley, who encouraged members’ input in the process. The senior task force began meeting in May following an independent consultant’s report commissioned by the PJM Board of Managers examining the June 2018 default of a trader in the Financial Transmission Rights Market.
“We’ll propose certain things that we feel are important, but we really want your input and your thoughts on their viability, on how these things affect your companies, your businesses,” Riley said. “We think we’re doing the right thing and feel pretty strongly – but again, we welcome your input.”
The Financial Risk Mitigation Senior Task Force is charged with identifying market rule reforms and devising a plan for their implementation before the December meeting of the Board of Managers.
Bloczynski reviewed “some of the basic tenets of a credit-risk framework,” specifically:
- Onboarding members and market participants, which includes “knowing your customer”
- Defining events of default and termination provisions
- Assessing internal credit scoring and refining PJM’s collateral calculations
- Developing a quantitative method to calculate exposure on a forward-looking basis
- Monitoring of market participants on an ongoing basis
“PJM needs the ability to monitor and take active measures to mitigate risk exposures that are generated by each participant,” she said, a key component of which is incorporating an entity’s risk profile into decision-making. Beyond using data analysis to monitor market participants, she said, PJM should rely on it to detect abnormal trading behavior and concentrations of risk.
Beyond using data analysis to monitor market participants, she said, PJM should rely on it to detect abnormal trading behavior and concentrations of risk.
Previous PJM discussion papers:
- Enduring Governance of PJM’s Financial Markets
- FTR Default Allocation and Central Counter-Party
- Position Limits and Liquidity Risk
- Variation Margin and Post-Auction Settlement
Also at the meeting, Becky Carroll, director – Dispatch, highlighted the latest of several PJM discussion papers, Due Diligence & Assessment Criteria Process and PJM Authorities and Discretion to Deny or Revoke Trading Rights.
In them, PJM proposes new information disclosure requirements to attain and maintain PJM membership.
The task force also reviewed prospective stakeholder process changes and suggested changes to the FTR auction schedule, with PJM proposing more frequent long-term auctions, as recommended by the independent consultant.
Going forward, meetings will be scheduled on two consecutive days, with the next set for Sept. 5–6.