While the final FRTB text has some important changes from the fourth QIS of July 2015, including an extra year for implementation (with a new deadline of January 1st, 2019 for local translation and Dec 31st for latest date for 1st report submission by the financial institutions) and a reduced Residual Risk Add-on—many of the key rules in the framework remain unchanged from prior versions. Derivate market participants are finding the scope and complexity of the framework quite daunting.

What can be done to adequately prepare for FRTB implementation? Clearly, this is a highly complex question without simple answers. For simplification purposes, this paper breaks down the key implications, requirements and methodologies related to the FRTB ‘final’ text and implementation. First, the paper starts by addressing the increasing capital risk charges of considerable concern to today’s derivative market participants—as they continue to rethink derivative business strategy and impact on overall profitability. Next, our study explores the computational implications of FRTB and provides a comparison of the current framework vs. the FRTB framework for the Standardized Approach and Internal Model Approach.

As the paper unfolds, it provides a comprehensive breakdown of the Standardized Approach and Internal Model Approach, including detailed methodologies and prescribed formulas—highlighting overall computational and data challenges and the need for organizations to review, and potentially revamp, IT infrastructure in preparation.

Highlights of the paper include:

  • FRTB Market Risk Capital Requirements under Standardized Approach and Internal Model Approach
  • Detailed Breakdowns of Newly Prescribed FRTB Calculation Requirements
  • Methodologies for the Current Framework vs. FRTB Framework—for both the Standardized Approach and the Internal Model Approach
  • Overview of Residual Risk Add-On as Revised in 'Final' FRTB Text
  • P&L Attribution and Its Challenges

Complete the form to the right to download this complimentary whitepaper, “Finalized,’ but Far from the Finish Line – Preparing for the Next Evolution of FRTB.”

 

Author Biography

Franck Rossi, Director of Product Management, Numerix LLC Franck Rossi is a Director of Product Management at Numerix, responsible for product strategy and thought leadership related to banking and derivatives regulations. He also works with clients to understand and document their requirements so Numerix can develop the required functionality into its software. Prior to joining Numerix, Mr. Rossi worked at Thomson Reuters in Product Management in Regulations, Analytics and Structured Products, and at HSBC in Interest Rate Structured Products. He holds an MSc in Finance and Mathematics from Paris-Dauphine University.

Download White Paper

Complete the form below to download this complimentary white paper.

Select Form: 

Form #5: Research

Keep me informed of future research from Numerix:

Sign me up to receive "Thinking Derivatively" monthly newsletter by Numerix:

* Required fields
live webinar

Practical Implementation of a Quantitative Platform for Risk & Valuation Analytics

industry conference

Risk Live North America 2022

newsletter issue - Sep 19, 2022

Thinking Derivatively – September 2022 Newsletter

white paper

Article | Lag in the SOFR-Linked Non-Linear Derivatives Market

newsletter issue - Aug 17, 2022

Thinking Derivatively – August 2022 Newsletter

on-demand webinar

Build Capital Market Apps Faster with NxCore Cloud

product collateral

Navigate the LIBOR Transition with CrossAsset | Fact Sheet

video blog

Numerix: Pushing Boundaries to Create Breakthrough Technology

product collateral

CrossAsset SEC Rule 18f-4 Solution | Fact Sheet

product collateral

CrossAsset Structured Finance | Fact Sheet

product

CrossAsset Structured Finance

research & insights

LIBOR Resource Guide