Société Générale / Risk Report - Pillar III

8 MARKET RISK

ORGANISATION OF MARKET RISK MANAGEMENT

Market risk is the risk of loss of value on financial instruments arising from changes in market parameters, the volatility of these parameters and the correlations between them. These parameters include, but are not limited to, exchange rates, interest rates, the price of securities (equities or bonds), commodities, derivatives and other assets.

ORGANISATION OF MARKET RISKMANAGEMENT 8.1

Although primary responsibility for managing risk exposure lies with the front office managers, the supervision system comes under the Market Risk Department of the Risk Division, which is independent from the businesses. This department: checks the existence of an effective market risk monitoring p framework based on suitable limits; assesses the limit requests submitted by the different businesses p within the framework of the overall limits authorised by the Board of Directors and General Management, and based on the use of these limits; proposes appropriate market risk limits by Group activity to the p Group Risk Committee; defines methods for assessing market risk; p approves the valuation models used to calculate risk and results; p defines methodologies for calculating provisions for market risk p (reserves and adjustments to earnings) and additional valuation adjustments (AVA); calculates and certifies on a daily basis, market risk indicators and p P&L resulting from market activities, based on formal and secure defines the methods for determining the parameters used for the p calculation of risks and results, validates sources to be used for these parameters. In order to perform its tasks, the department also defines the architecture and the functionalities of the information system used to produce the risk and P&L indicators for market transactions, and ensures it meets the needs of the different businesses and of the Market Risk Department. In addition, this department also contributes to the detection of possible rogue trading operations through a monitoring mechanism based on alert levels (on gross nominal value of positions for example) applied to all instruments and desks. In terms of governance, within the Market Risk Department, the main functional and transversal subjects are dealt with during Committees organised by value chains (market risk, P&L and valuation, etc.). These Committees are decision-making bodies, composed of senior procedures, then reports and analyses these indicators; monitors on a daily basis the limits set for each activity; p

representatives from each relevant Department teams and regions. Beyond the Department, market risks oversight is provided by various Committees at different levels of the Group: the market risk related to the Global Markets Division are reviewed p during the Market Risk Committee (MRC) led by the Market Risk Department and co-chaired by the Risk Division and by the Global Markets Division. This committee provides information on risk levels for the main risk indicators as well as for some specific activities pointed out depending on market or business driven events. It also provides an opinion on the market risk framework changes falling under the remit of the Risk Division and Global Markets Division; the Risk Committee (CORISQ), chaired by the Chief Executive Officer p of the Group, is regularly informed of Group-level market risk. Moreover, upon a proposal from the Market Risk Division, it validates the main choices with regard to market risk measurement, as well as the key developments on the architecture and implementation of the market risk framework at Group level; the Risk Committee of the Board of Directors is informed of the p Group’s major market risks; in addition, it issues a recommendation on the most substantial proposed changes in terms of market risk measurement and framework (after prior approval by the CORISQ); this recommendation is then referred to the Board of Directors for a decision; accounting valuation matters are addressed in two valuation p committees, both chaired by the Finance Division and both attended by representatives of the Global Markets Division and the Market Risk department: the Global Valuation Committee which discusses and approves financial instrument valuation methodologies (model refinements, reserve methodologies, etc.) and the Global Valuation Review Committee, which reviews changes in reserves, valuation adjustment figures, and related accounting impacts; the topics related to Prudent Valuation are dealt with during p methodological committees and validation committees, organised quarterly, and both chaired by the Finance Division and both attended by representatives of the Global Markets Division and the Market Risk department. In addition to these Committees, detailed and summary market risk reports, produced on a daily, weekly, monthly or quarterly basis, either related to various Group levels or geographic areas, are sent to the relevant business line and risk function managers.

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PILLAR 3 - 2020 | SOCIETE GENERALE GROUP |