The DTCC has released a beta version of its FRTB Real Price Observations Data Service after collaborating with more than 30 pilot members, a list that encompasses “every leading bank that trades over-the-counter (OTC) derivatives around the world,” say officials of the the post-trade infrastructure services and systems provider.
The DTCC will conduct a FRTB service pilot into next year and expects it to conclude by the second quarter of 2020.
The service is in response to the Fundamental Review of the Trading Book (FRTB), a set of rules from the Basel Committee on Banking Supervision (BCBS) that sets minimum capital requirements for market risk and addresses “shortcomings of the current Basel III market risk capital framework,” remind DTCC officials.
“FRTB requires banks to evidence enough market liquidity for the positions in their trading book that are capitalized using an approved internal model approach (IMA),” according to the DTCC.
“Without empirical trade data and tools to interact with it, banks are struggling to understand the impact on capital charges and the quantitative benefits of IMA. Failure to secure robust, high quality price observation data to assist with non-modellable risk factor (NMRF) analysis may subject firms to significant capital inefficiencies, which could threaten the viability of trading in certain asset classes and the withdrawal of liquidity from the market,” DTCC officials urge in their announcement.
The new service is intended to map “risk factors to a pool of global derivatives data to gain insight on modellability results in accordance” with the FRTB framework, officials add. “The release of DTCC’s FRTB beta application represents the first phase in the firm’s efforts to deliver a pooled data solution that will help banks obtain greater insight into modellability results and build the business case for IMA.”
The beta version of the FRTB data service “leverages DTCC’s global data collection infrastructures to pool observable transaction data, helping banks meet requirements for internal model approval, thereby maximizing risk capital charge efficiencies,” says industry veteran Tim Lind, who is managing director, head of DTCC Data Services, in a prepared statement.
The DTCC is partnering with ActiveViam and using the company’s in-memory analytics technology, ActivePivot, “to provide full insights on the impact FRTB will have on market risk capital charges,” DTCC officials say. ActiveViam makes data analytics software solutions that can be applied to the high-speed and heavy data volume demands of key financial service applications.
“This service will help banks move beyond uncertainty and conjecture related to IMA and position them to achieve the actual insight necessary to make strategic plans to address the challenges created by the FRTB framework,” says Kathy Perrotte, co-founder and managing director for ActiveViam, in a prepared statement.