A report recently released by the CFA Institute indicates that shareholders need more information on the derivatives hedging activities of companies they invest in if they are to comprehend the risk exposures of these firms.
According to the paper, called “User Perspectives of Financial Instrument Risk Disclosures under IFRS: Derivatives and Hedging Activities Disclosures (Volume II),” providing potential investors with greater knowledge of these derivatives risk management activities is crucial to ensuring that they have the knowledge needed to make the right decisions.
The report notes that derivatives hedging is a strategy used by a wide range of organizations, and the misinformation that can be included in communications sent to investors is illustrated by the recent high profile losses.
In addition, the report asserts that improving the practices that companies have surrounding firm disclosures will allow the companiesto communicate crucial information related to risk management in a clearer way.
The new document also seeks to encourage firms to disclose information when not required by existing regulations to do so. By focusing on the point of view of the organizations using derivatives for risk management, the report desires to create awareness surrounding the benefits of reform.
◦ Asset Liability Management
◦ Portfolio Risk
◦ Sensitivities & Hedging
◦ Stress Testing & Scenario Analysis