11 December 2017
visit www.avoka.com

DTCC suggests industry data pool to mitigate new risk capital requirements

12 September 2017  |  2517 views  |  0 Source: DTCC

A new white paper from The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, suggests ‘real’ price and non-modellable risk factors (‘NMRF’) requirements under the Fundamental Review of the Trading Book (FRTB) will pose significant challenges to market participants, potentially mandating large increases in the capital that banks must maintain for market risk purposes (market risk capital).

However, banks have an opportunity to reduce their market risk capital charges by using ‘pooled’ observable transaction data to demonstrate that the associated risk factors meet the ‘real’ price standards under FRTB.

The FRTB, released by the Basel Committee on Banking Supervision on January 14, 2016, overhauls the market risk capital requirements to drive improvements to the Basel III framework. One of the most significant changes is the introduction of a new risk factor modellability assessment framework based on ‘real’ price criteria. The framework requires banks to provide evidence of sufficient liquidity across market risk factors related to the positions in their regulatory trading book, including those that are capitalized using approved internal models. Under FTRB, the demonstration of market liquidity must meet minimum standards with respect to actual transactions and committed quote volume. It is these ‘real’ price requirements to assess risk factor modellability that have raised concern among market participants.

The white paper analyzes the FRTB ‘real’ price criteria to determine risk factor modellability and its impact on banks that are subject to the market risk capital rules. It also provides insights on the key observations from DTCC’s ‘‘Real Price Data Study”, which internally analyzed over 10 billion over-the-counter (OTC) derivative transactions that flow through DTCC’s infrastructure, and examined the potential benefits to banks using DTCC’s pooled ‘real’ price data. This assessment revealed the following observations:

• Large dealers would benefit from using industry-pooled data over and above their own data
• Industry data pools demonstrate significantly higher levels of modellability than individual firm data across credit, rates and FX, and
• Dealers have the potential to see a relative reduction of non-modellability across multiple asset classes using pooled observation data.

“We are hearing a common message across the industry that there is a significant need for a ‘real’ price observation data service that helps firms demonstrate the modellability of risk factors,” said Ron Jordan, Managing Director of Data Services, DTCC. “Our clients have encouraged us to leverage our existing data collection and processing infrastructure because DTCC is a centralized collection point for FRTB-relevant data, most of the industry is already connected to us, and clients recognize the fundamental role we play in reducing risks and costs across global markets. We see a clear opportunity for DTCC to help our clients manage the potential capital impact of FRTB.”

Comments: (0)

Comment on this story (membership required)

Related company news


Related blogs

Create a blog about this story (membership required)
visit www.atos.netvisit http://info.nice.comvisit www.aciworldwide.com

Top topics

Most viewed Most shared
Revolut lets customers buy Bitcoin, Litecoin and EthereumRevolut lets customers buy Bitcoin, Liteco...
18181 views comments | 26 tweets | 22 linkedin
Saxo Bank's 'Outrageous Prediction': Bitcoin to peak at $60k next year before spectacular crashSaxo Bank's 'Outrageous Prediction': Bitco...
11071 views comments | 7 tweets | 6 linkedin
Deutsche Bank paper hails 'huge' blockchain potentialDeutsche Bank paper hails 'huge' blockchai...
6911 views comments | 13 tweets | 20 linkedin
Santander UK poaches Barclays innovation chief Michael HarteSantander UK poaches Barclays innovation c...
6449 views comments | 8 tweets | 17 linkedin
Barclays, First Direct and Nationwide join FCA sandbox cohortBarclays, First Direct and Nationwide join...
5854 views comments | 5 tweets | 12 linkedin

Featured job

Competitive base, commission, benefits
London, UK

Find your next job