Price testing of illiquid positions via broker quotes

Example 2 Price testing of illiquid positions via broker quotes
Prices for illiquid bonds are not available by way of market data providers and calling
brokers for quotes is the only method of obtaining prices. Traders indicate that they
are becoming concerned with the frequency of price testing and are beginning to
complain to management that they are being overly controlled. When sitting down
with the traders it becomes apparent that the traders are concerned with the market
knowing the less liquid positions just prior to accumulating or selling a position. The
risk practitioner agrees with the traders a policy that if there are sensitive positions
that are not to be included in price testing they obtain approval from the head of
trading. This note is included in the price testing report and is to be discussed at the
risk committee meeting.