FRTB should not just be viewed as a regulatory headache – proactive adopters of Numerix FRTB can experience positive P&L impacts and achieve competitive advantages

Moving from SA to IMA

Many trading desks will be content to use the Standardized Approach, due to the perceived complexity of implementing the Internal Models Approach. However, Numerix FRTB provides desks with an out-of-the-box solution to this problem, and the rewards are potentially high. Trading desks switching from SA to IMA could lower capital requirements substantially – possibly 50% or more – and achieve:

  • Positive and material P&L impacts for the bank, as capital is released and put to good use
  • A more sustainable and viable business model, allowing desks to keep operating instead of shutting down
  • A competitive edge in the market, due to more competitive pricing of trades (with lower KVA)
     

Make Better Strategic Decisions

Banks can utilize Numerix FRTB to perform regulatory "what if" analysis to analyze and optimize trading desk structures in order to maximize capital relief. Banks can assess desk viability before – not after – major organizational changes and business model decisions are made.

Fast Time-to-Market

Because Numerix FRTB can be deployed relatively quickly, early adopters of Numerix FRTB can beat the "regulatory queue" and win first mover advantages in the marketplace, especially for trading desks who achieve IMA approval. As outlined in the first point, first movers with IMA approval can often price trades more competitively than rivals due to lower KVA charges, thereby allowing them to win market share.

DEALING WITH P&L ATTRIBUTION CHALLENGES

One of the most challenging aspects of achieving IMA approval – Front Office and Middle Office alignment of models for P&L attribution – becomes easier to handle with Numerix FRTB because of its robust and proven models and their ability to match Front Office models from a bank's in-house systems as well as other third party systems.

This changes the nature of the P&L attribution challenge from a "model alignment" problem to a "market data snapshot alignment" issue, which is typically a more manageable issue.

Numerix FRTB provides a centralized approach for managing P&L attribution and leverages the accuracy and speed of Numerix's derivative pricing models for cross-asset coverage across all product types a bank may trade.