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Industry Looks to Market Data for FRTB Compliance

Although regulatory authorities may be giving the financial industry more time to comply with Fundamental Review of the Trading Book (FRTB) guidelines on market risk and capital adequacy, firms are finding they need to improve their market data management to be ready.

The Basel Committee on Banking Supervision, architect of FRTB, has set its effective date as January 2019, but Singapore and Hong Kong authorities have already indicated that they intend to postpone that deadline in their markets, and more nations could follow suit, according to Charlie Browne, head of market data and risk solutions in the London office of GoldenSource.

“While there’s still a push to get things done, the pressure is off,” he says. “Firms were pushing hard to get solutions out to meet the original deadlines. They were looking at tactical solutions, what to do with in-house systems and how to bolt solutions into places they shouldn’t go. But with the deadlines pushed out, we see banks taking a more strategic approach with FRTB.”

In recent meetings with users, SAP, which offers trading and treasury solutions powered by Calypso Technology (the service providers began a partnership in 2015), has been finding struggles in handling market data, according to Stuart Grant, solution manager for capital markets in the global banking industry business unit of SAP.

“Managing the volume, controlling the use and distribution of market data required under FRTB has been highlighted,” he says. “The workflow element – Calypso and SAP offer a completely integrated front, middle and back office solution – of managing the trade execution through to the risk management environment and on to settlement and clearing, fits nicely with what the regulatory landscape is becoming.”

Leveraging its enterprise market risk engine developed for compliance with Basel III, the regulatory predecessor to FRTB, Calypso took that engine’s components for stress-testing, centralised pricing, and front and middle office resources, and applied them to front-office, trading level risk management oversight, adds Grant.

Calypso’s solutions integrate with SAP’s HANA database management system and Advanced Server Enterprise (ASE) processing service, which handle market data issues – therefore addressing the users’ struggles that Grant mentions. “That lends itself to doing real-time decisions or continuous decision-making,” he says. “It gives organisations the agility to react across the business to unexpected events.”

GoldenSource’s Browne echoes these market data concerns for FRTB compliance. “Banks are trying to guess what market data vendors do,” he says. “Vendors are trying to guess what other vendors are doing. Nobody really knows how this will pan out.”

Firms are also pushing for ever-quicker data management, according to Browne. “FRTB and regulations generally are pushing enterprise data management [providers] and middle-office risk finance toward solutions that are able to process high volumes of data very quickly,” he says. “The amount of information the front offices need at the end of the day has increased tenfold. You need at least 10 years’ worth of time series data to do FRTB calculations every day.”

These data demands are beyond the capability of traditional order and execution management systems, adds Browne. “You need a low latency approach to data storage and retrieval for some of the calculations needed for FRTB.”

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