As the name suggest, the middle office is literally in between the Front and the Back office. There may be few functions where there is an overlap and may fall in between mid and back office. The heads decide where they would lie and who would perform it.
Example; Accounting – Many banks would want the Mid office to make the accounting and adjusting entries. In many banks, the accounting piece is lying with the back office.
Mid-0ffce is responsible for risk measurement, monitoring and management reporting. The other main functions of mid office are:
- Limit setting – dealer-wise / currency-wise / portfolio-wise
- Monitoring exposures in relations to the above limits set.
- Forecasting likely market movements based on internal assessment and external / internal research.
- Hedging assets and liabilities
- Liquidity and funding
- Managing Market risk
- Monitoring open currency positions
- Calculating and reporting VaR (Value at Risk)
- Stress testing
- Risk-Return analysis