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Best Practice for MiFID II and FRTB Data Analytics and Risk Modelling

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Markets in Financial Instruments Directive II (MiFID II) and the Fundamental Review of the Trading Book (FRTB) raise the bar on data analytics, benchmarks and risk modelling, requiring firms to process huge volumes of data and tackle the challenges of data quality and consistency. For those that succeed, beneficial outcomes include improved transparency that can help firms better understand opportunities and risks within their business.

The intricacies of MiFID II and FRTB were discussed during a recent A-Team Group webinar. The webinar was hosted by Andrew Delaney, chief content officer at A-Team, and joined by Thomas Kennedy, global head of analytic services, financial & risk division, Thomson Reuters; Kurt Eldridge, global sales director, SmartStream; Johannes Frey-Skött, vice president engineering of agency trading apps, Itiviti; and Brian Lynch, co-founder and CEO, RegTek Solutions.

The speakers identified key MiFID II challenges as increased instrument coverage and best execution requirements, both of which call for higher quality data and more data analytics. Frey-Skött commented: “The biggest challenge of MiFID II is the complexity of data required for best execution. All data must be collected and analytics run in real time. MiFID required analytics on a T+1basis.”

FRTB raises challenges including modellable risk factors that revolve around market data that is not always easy to source.

Considering whether firms are taking a strategic or tactical approach to MiFID II and FRTB, an early poll of the webinar audience suggested a more strategic than tactical approach. Lynch said many firms taking a ‘stratactical’ approach, saying: “Aspirationally, firms have wanted to take a strategic approach to MiFID II, but the impending compliance deadline of the regulation means firms are looking at some elements of the regulation more tactically.”

A second audience poll revealed the key challenges of MiFID II data analytics as data quality and consistency, and finding suitable solutions. The speakers added sourcing required data from many sources, filling additional market data fields, and creating a framework to support all regulatory analytics and reporting. On MiFID II, Kennedy said: “The technical and data challenges are vast. Solutions for analytics need to be based on technology that can scale for MiFID II and beyond.” Considering how best to source data, Eldridge added: “The need is to understand requirements and how they change as regulations change. A platform that can bring in new data sources dynamically is a solution here.”

A poll on the challenges of risk modelling for MiFID II and FRTB resulted in a similar audience response, with most respondents noting data quality and consistency, and building a framework for risk modelling.

Addressing best practice approaches to data analytics, benchmarks and risk modelling, the speakers talked about the need for digital transformation that can break down data siloes, provide a centralised data management strategy, and allow firms to select sustainable technology solutions. A services rather than systems build approach was favoured, along with spreading risk by selecting a number of vendors and integrating their solutions.

Final advice for data practitioners included think strategically, create a data model to normalise data, and implement a platform for all analytics and reports.

Listen to the webinar to find out more about:

  • MiFID II data analytics
  • FRTB risk modelling
  • Data management challenges
  • Best practice approaches
  • Expert guidance
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