Extensive Support for both Internal Models Approach (IMA) & Standardized Approach (SA)

Conduct early stage FRTB Impact Assessments

Produce daily FRTB calculations in minutes instead of hours

Rapid deployment as a SaaS solution

First-to-market FRTB solution is available NOW

High Performance SaaS Solution for FRTB Compliance

FRTB REQUIRES STRATEGIC TRANSFORMATION & NUMERIX FRTB IS A TECHNOLOGY ENABLER OF TRANSFORMATION

The Fundamental Review of the Trading Book (FRTB) is a complex set of regulations with tight deadlines, and it forces Front and Middle Offices to re-think and overhaul their market risk processes and technology.

Proactive banks who wish to thrive in the new FRTB era are viewing FRTB as a catalyst for strategic transformation, and they are leveraging cutting edge technology like Numerix FRTB to help enable the transformation of their bank into the new era.

Moreover, while most banks view FRTB simply as a regulatory headache, forward-thinking banks can achieve competitive advantages and positive P&L impacts by accelerating their FRTB readiness and undertaking real transformations in their Front and Middle Offices rather than hacking fragmented, piecemeal FRTB solutions onto legacy infrastructure.

The impact of slow or shoddy FRTB compliance will be material banks will experience higher capital requirements than competitors and the viability of trading desks and lines of business will be threatened.

So banks need to act NOW to assess their strategic options and move quickly and decisively to comply with FRTB and Numerix FRTB is available NOW to help banks through this process.

Early Stage

Assesses FRTBs impact on overall and desk-level capital requirements, to assist with strategic decision-making

Ongoing

Run daily FRTB reports for all business units from desk level to enterprise level, for ongoing regulatory compliance

NUMERIX FRTB OVERVIEW

Early Stage Impact Assessments

Banks can utilize Numerix FRTB to perform impact assessments and regulatory scenario analysis in the early stages of their FRTB planning, to help them analyze the projected capital impact of FRTB and make well-informed strategic decisions.

By evaluating different what if scenarios in Numerix FRTB, they can determine optimal trading desk configurations and model choices (IMA vs. SA) to achieve maximum capital efficiency.

Early stage assessments can also help expose and pinpoint where possible weaknesses and vulnerabilities exist in FRTB-related processes or calculations, so banks can address the issues proactively instead of reactively to save significant time and money. Management can also use the analysis to more efficiently allocate resources during the FRTB implementation project.

Ongoing Regulatory Compliance

Numerix FRTB supports both the Internal Model Approach and the Standardized Approach, so banks can use whichever model is most appropriate for each trading desk.

Calculations are run daily for all business units from desk level to enterprise level, and all calculations and reports can be generated in minutes rather than hours due to the high performance risk engine within Numerix FRTB.

Numerix FRTB is a high-performance FRTB solution that helps banks transform their Front and Middle Offices to comply with FRTB

NUMERIX FRTB HIGHLIGHTS

3 Extensive support for both the Internal Models Approach and the Standardized Approach

3 Comprehensive reporting at summary and detail levels

3 High performance risk engine for fast calculations

3 Lightweight deployment as a cloud-based solution

3 What if scenarios to optimize trading desk configurations

3 Cross asset product coverage, to cover all products traded

3 Intuitive workflow for efficient daily use

3 Dynamic drill down for full transparency (NOT a black box)

3 Flexible market data options, including off-the-shelf connectivity to several data vendors

3 Automation of daily processes and reporting

COMPREHENSIVE SUPPORT FOR BOTH INTERNAL MODELS APPROACH & STANDARDIZED APPROACH

INTERNAL MODELS APPROACH

Calculates Expected Shortfall (ES) at the 97.5% confidence interval on a daily basis for each trading desk seeking IMA approval

Runs 3 ES calculations to scale the current ES to the stress period

Automatically identifies the banks 1-year historic stress window out of 10+ years of historical data

Uses single market simulations to limit diversification

Runs the ES calculations across 5 liquidity bands which are then combined back into the Internal Model Capital Charge (IMCC) result

Provides battle-tested pricing models for the P&L attribution and back-testing frameworks, which can match any in-house or vendor models to ensure P&L alignment between FO and MO

Runs Standardized Approach calculations on a monthly basis as the fallback capital charge if IMA eligibility is lost

STANDARDIZED APPROACH

Sensitivity-based risk charge:

Provides fully transparent and accessible definitions for risk factors, sensitivities, buckets, risk weights and correlations

Generates all delta/vega/curvature sensitivities, and then applies them to the appropriate SA vertices for the capital calculation

Aggregates the sensitivities using the SA-prescribed correlation scenarios and aggregation formulas

Adds Default Risk Charge (DRC) and Residual Risk Add-On (RRAO) to the Sensitivity-based risk charge to arrive at a Total SA charge

Uses a risk factor driven model to defining sensitivities, where sensitivity definitions contain wild cards to ensure all risk factors are automatically captured, generating sensitivities, and assigned to FRTB buckets

Even new risk factors (e.g. from a new trade) with an unassigned FRTB mapping will be captured, and the sensitivity will be calculated and stored in the FRTB other bucket to attract the highest capital charges

Sample summary report for the Internal Models Approach

CUTTING EDGE TECHNOLOGY

Numerix FRTBs High Performance Risk Engine Calculates FRTB Reports in Minutes Instead of Hours

Standard Model Internal Model

Desks 14 14

Trades 331,000 331,000

Historical Simulations - 1260

Sensitivities 76,878 -

Trade Valuations 54,872,271 2,215,230,420

Cashflow Valuations 767,525,862 30,050,754,264

CPU Cores 80 80

Run Time 8 Minutes 12 Minutes

Numerix FRTB utilizes Vectorized models whereby the model code is optimized at the single core level to achieve an 80x speed up over regular models.

Portfolio Composition: 42% swaps. 21% options. 37% FX

Desks include 20 parent aggregations up to global IMCC

SAAS, SCALABLE & RAPIDLY DEPLOYED

Numerix FRTB is delivered as a Software as a Service (SaaS) solution built on the Microsoft Azure cloud, and benefits from all the advantages of cloud technology.

It is also available on private cloud or on-premise clusters if necessary.

Speed: additional cloud cores can be recruited to speed up calculations

Deployment/implementation ease: no local software to install or maintain

Scalability: infinite cloud capacity is available as needed

Elasticity: cloud capacity can be scaled up or down on demand

Reduced IT costs: minimal hardware and staffing costs to maintain the system

Always up-to-date software: new enhancements and features are automatically available to clients

OPPORTUNITIES USING NUMERIX FRTB

FRTB should not just be viewed as a regulatory headache proactive adopters of Numerix FRTB can experience positive P&L impacts and achieve competitive advantages

Moving from SA to IMA

Many trading desks will be content to use the Standardized Approach, due to the perceived complexity of implementing the Internal Models Approach. However, Numerix FRTB provides desks with an out-of-the-box solution to this problem, and the rewards are potentially high. Trading desks switching from SA to IMA could lower capital requirements substantially possibly 50% or more and achieve:

Positive and material P&L impacts for the desk, as capital is released and put to good use

A more sustainable and viable business model, allowing desks to keep operating instead of shutting down

A competitive edge in the market, due to more competitive pricing of trades (with lower KVA)

Make Better Strategic Decisions

Banks can utilize Numerix FRTB to perform regulatory what if analysis to analyze and optimize trading desk structures in order to maximize capital relief. Banks can assess desk viability before not after major organizational changes and business model decisions are made.

Fast Time-to-Market

Because Numerix FRTB can be deployed relatively quickly, early adopters of Numerix FRTB can beat the regulatory queue and win first mover advantages in the marketplace, especially for trading desks who achieve IMA approval. As outlined in the first point, first movers with IMA approval can often price trades more competitively than rivals due to lower KVA charges, thereby allowing them to win market share.

DEALING WITH P&L ATTRIBUTION CHALLENGES

One of the most challenging aspects of achieving IMA approval Front Office and Middle Office alignment of models for P&L attribution becomes easier to handle with Numerix FRTB because of its robust and proven models and their ability to match Front Office models from a banks in-house systems as well as other third party systems.

This changes the nature of the P&L attribution challenge from a model alignment problem to a market data snapshot alignment issue, which is typically