NATIXIS_REGISTRATION_DOCUMENT_2017

3 RISKS AND CAPITAL ADEQUACY Market risks

Market risks 3.7

TARGETS AND POLICY 3.7.1

METHODOLOGY FOR MEASURING 3.7.3 MARKET RISK

(Data certified by the Statutory Auditors in accordance with IFRS7) The Risk Managementfunction places great importance on the formal definitionof all risk policies governingmarket transactions based on both a qualitative and forward-looking analysis. This approach includes the strategic review of global risk envelopes, businessline targets and market trends and relies on a proactive earlywarningsystemfor the most sensitiveareas at risk. These market risk policies focus on a set of methodological principlesin terms of risk monitoringand supervisionand provide a matrix approachto businessesby asset class and management strategy.

(Data certified by the Statutory Auditors in accordance with IFRS7) Natixis’ market risk management is based on a risk metrics model that measures the risks incurred by each entity of the bank. Differenttechniquesare used to measuremarketrisk. Value at Risk (VaR) Natixis’ internal VaR model was approved by the Autorité de Contrôle Prudentiel et de Résolution in January 2009. Natixis thus uses VaR to calculate capital requirementsfor market risks within approved scopes, and to manage and supervise market risks. The approved scope covers the majority of Corporate & InvestmentBankingactivities. The model is based on a calculation by computer simulation, based on Monte Carlo-type methodology,taking into account a portfolio’s possible non-linear characteristics with respect to differentrisk factors. Market data used in the valuation of portfolios (share prices, indices,interestrates, exchangerates, commodityprices and the related volatility) are updated on a daily basis, when available, and the statisticaldata used (standarddeviationand correlations) is updatedweekly. All the trading portfolios are subject to adequate risk monitoring and supervision systems, in accordance with the market risk policies in force. A VaR limit is set at an overall level and for each business. These measurementsgive a snapshot of VaR and help identify potential losses in each business, based on a pre-determined confidencelevel (99%) and time period(one day). To this end, a statisticalmodel has been constructedto track the combined behavior of market parameters affecting portfolio value. The calculationmethod is based on an econometricmodel whose standarddeviationsare calculatedas being the maximum (risk factor by risk factor) standard deviations calculated over rolling 12-month and 3-month periods. This method makes VaR more responsiveif the marketssuddenlybecomemore volatile.

ORGANIZATION OF MARKET RISK 3.7.2 MANAGEMENT

(Data certified by the Statutory Auditors in accordance with IFRS7) Market risk control is based on a limit authorizationstructurethat is overseen by the Global Risk Committee and in which the Market Risk Committee, chaired by the Chief Executive Officer or the delegatedrepresentative,plays an essentialrole. The Risk division: definesrisk measurementand fair value adjustmentmethods; a examines annual limit reviews (including risk appetite) and a ad hoc requests for modifications (VaR, stress tests, operationalindicators,loss alerts); providesalerts for areas at risk relating to the businesslines or a to Natixis'SeniorManagement; is responsiblefor the daily analysis and measurementof risks, a daily reporting, and notifying front office and managementof any breaches; approves and monitors the pricing models (pricers) and a associatedreservesused in front officemanagementtools; defines and validates the models and methodologiesfor the a institution’s internal model, used in particular to calculate regulatorycapitalcharges; defines standards and procedures common to all entities a (subsidiariesand branches) carrying market risks and ensures that those standardsand procedurescontinueto evolve.

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Natixis Registration Document 2017