FRTB is a game-changer – here’s why.
The new capital requirements could severely damage the profitability of your trading business, if not both front-office and risk-reporting are aligned according to the new rules.
Current front-to-back and risk systems are not geared for recurring trial-and-error work. With the new FRTB regime, this is exactly what is going to happen.
The ARMS FRTB solution includes a range of new tools, including the client tools needed to perform efficient P&L attribution and back-testing on a daily basis, both on desk level and entire trading book runs. Tools are also available to examine the impact of changes in risk factor classification and setup.
FRTB requires a new skill set for performing day-to-day operations and ARMS is here to help.
The calculation of expected shortfall as required by FRTB is computationally very expensive, and the IMA model alone will require almost hundred independent runs of expected shortfall for the same set of global positions.
The ARMS FRTB server uses highly optimized vectorized pricing functions covering a complete set of asset classes and instruments types. The code is tailor-made to take full advantage of current CPU architectures at the single core level as well as scaling well over multi-core/multi CPU clusters.
Getting market leading performance per dollar on standard server hardware is key to economize the FRTB runs.
FRTB requires an extended set of risk factors and is potentially more sensitive to bad market data quality. Positions and transactions need to be properly enriched with static and meta data, or the netting and aggregation will not work. Should the risk factors and the front-office pricing factors not be closely aligned, the portfolios will not pass the PnL attribution tests.
The ARMS FRTB solution draws on our long experience of managing market data and providing tools for automated and manual cleaning of derived data sets.
Having a fully integrated source of market data is imperative for successful implementation of any FRTB system.
FRTB IMA approval requires careful alignment of front-office and middle-office models and data. The successful solution needs to adopt a modular approach with powerful and comprehensive API:s that can leverage efficiently on existing front- and middle-office technology.
The ARMS FRTB solution includes a wide range of robust and proven models with the ability to match the front-office internal models as well as other front-office systems. In addition, ARMS FRTB provides an open API for importing front-office sensitivities, and P&L vectors when needed. It also contains real-time API:s for exporting risk figures to external tools.
No tool is an island, and the successful FRTB solutions needs to leverage efficiently with existing front-office and middle-office systems.