Optimizing Global Bank's Trading Desk for FRTB Compliance

Challenges.

FRTB defines set of new rules for calculating market risk RWA and regulatory capital thereof and these measures are attributed to a specific legal entity.  

The above requirement translated that each trade booked in the Front office applications should not just be aligned with business hierarchy construct, which was the case currently but also clearly mapped to a specific legal entity.   

A trading desk structure was needed for the bank : - 

• To align the LOBs that are eligible for FRTB IMA approach, into optimal trading desks.  
• To streamline internal risk management, capital calculations and financial reporting.  

Solution.

• Composite ID Implementation - Legal Entity ID and Business Entity ID were linked through a new composite ID, enabling a link between the existing Business Hierarchy in the Risk Data Warehouse and the FRTB Legalised Entity 
• Data Pipeline Enhancement - All data pipelines from FO Feeds to Risk Data Warehouse and Finance Datawarehouse were updated with composite IDs to flow front-to-back for each trade / position to enable proper financial accounting for legal entities for stand-alone and consolidation in case of parent legal entities.

The Impact.

• Optimal capital allocation for market risk RWA for the legal entities.  
• Ability to determine inter affiliate trades vs intra entity trades for application of financial accounting consolidation rules.  
• Effective Capture of the FX risk on B/S  
• Proper and effective close-out netting set determination crucial for portfolio risk management, credit exposure calculations and financial accounting purposes