High Performance SaaS Solution for FRTB Compliance

• 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
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 Ongoing

Assesses FRTB’s impact Run daily FRTB reports for all business units from desk level
on overall and desk-level to enterprise level, for ongoing regulatory compliance
capital requirements,
to assist with strategic
decision-making
NUMERIX FRTB OVERVIEW

Numerix FRTB is a high-performance FRTB solution that helps

banks transform their Front and Middle Offices to comply with FRTB

Early Stage Impact Assessments

Banks can utilize Numerix FRTB to perform impact NUMERIX FRTB HIGHLIGHTS
assessments and regulatory scenario analysis in the early
stages of their FRTB planning, to help them analyze the
3 EApproach
xtensive support for both the Internal Models
and the Standardized Approach
projected capital impact of FRTB and make well-informed
strategic decisions. 3 Comprehensive
detail levels reporting at summary and
By evaluating different “what if” scenarios in Numerix FRTB,
they can determine optimal trading desk configurations 3 High
 performance risk engine for fast
and model choices (IMA vs. SA) to achieve maximum capital calculations
efficiency.
3 Lightweight
 deployment as a cloud-based
Early stage assessments can also help expose and pinpoint solution
where possible weaknesses and vulnerabilities exist in
FRTB-related processes or calculations, so banks can 3 “What
 if” scenarios to optimize trading desk
configurations
address the issues proactively instead of reactively to save
significant time and money. Management can also use the 3 Cross
products
asset product coverage, to cover all
analysis to more efficiently allocate resources during the traded
FRTB implementation project.
3 Intuitive workflow for efficient daily use
Ongoing Regulatory Compliance 3 Dynamic
 drill down for full transparency
(NOT a black box)
Numerix FRTB supports both the Internal Model Approach
and the Standardized Approach, so banks can use whichever 3 Flexible
off-the-shelf
market data options, including
model is most appropriate for each trading desk. connectivity to several data
vendors
Calculations are run daily for all business units from desk
level to enterprise level, and all calculations and reports can 3 Automation of daily processes and reporting
be generated in minutes rather than hours due to the high
performance risk engine within Numerix FRTB.
COMPREHENSIVE SUPPORT FOR BOTH INTERNAL MODELS APPROACH & STANDARDIZED APPROACH

INTERNAL MODELS APPROACH STANDARDIZED APPROACH

• Calculates Expected Shortfall (ES) at the 97.5% confidence interval on • Sensitivity-based risk charge:
a daily basis for each trading desk seeking IMA approval
• Provides fully transparent and
• Runs 3 ES calculations to scale the current ES to the stress period accessible definitions for risk
• Automatically identifies the bank’s 1-year historic stress window factors, sensitivities, buckets,
out of 10+ years of historical data risk weights and correlations

• Uses single market simulations to limit diversification • Generates all delta/vega/curvature

sensitivities, and then applies
• Runs the ES calculations across 5 liquidity bands which are then them to the appropriate SA vertices
combined back into the Internal Model Capital Charge (IMCC) result for the capital calculation
• Provides “battle-tested” pricing models for the P&L attribution and back- • Aggregates the sensitivities using
testing frameworks, which can match any in-house or vendor models to the SA-prescribed correlation
ensure P&L alignment between FO and MO scenarios and aggregation
• Runs Standardized Approach calculations on a monthly basis as the fallback formulas
capital charge if IMA eligibility is lost • 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 FRTB’s 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
Portfolio Composition: 42% swaps.
CPU Cores 80 80 21% options. 37% FX
Desks include 20 parent
Run Time 8 Minutes 12 Minutes aggregations up to global IMCC

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.

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: Deployment/ Scalability: Elasticity: cloud Reduced IT costs: Always up-

additional cloud implementation infinite cloud capacity can be minimal hardware to-date
cores can be ease: no local capacity is scaled up or and staffing software: new
recruited to speed software to install available down on demand costs to maintain enhancements
up calculations or maintain as needed the system 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 bank’s 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 a more manageable issue.
Numerix FRTB provides a centralized approach for managing P&L attribution and leverages the accuracy and speed of
Numerix’s derivative pricing models for cross-asset coverage across all product types a bank may trade.
 NUMERIX FRTB DIFFERENTIATORS WHY NUMERIX?
Fastest calculations in the industry Technology Leader
Numerix FRTB’s high performance risk engine Numerix is the industry leader in derivative pricing
performs daily FRTB calculations in just minutes models and risk technology, providing analytics
instead of hours, enabling calculations to be re-run with unparalleled speed and accuracy
multiple times if necessary to find and fix issues

Expertise
Rapid deployment
200+ quants, developers, and implementation
Available as Software as a Service (SaaS) on the experts on Numerix’s technical team can help
Microsoft Azure cloud, so implementations are
solve any FRTB problems you may encounter
much faster and easier than in-house builds or
as you leverage Numerix FRTB in your business
other vendor products

Global Presence
Proven and flexible sell-side pricing models
With 24 offices in 16 countries around the globe,
Our industry leading derivative pricing models can
Numerix has a presence in your time zone
match any Front Office models for P&L attribution
purposes, to help trading desks achieve IMA approval for responsive support and assistance using
Numerix FRTB

And MOST IMPORTANTLY: Stability

Numerix FRTB is a tangible, implementable Founded in 1996 and employing 300 employees,
product and AVAILABLE NOW - not vaporware Numerix is a stable, growing company you can
like many other solutions
count on, with a history of success providing mission
critical software to the world’s biggest financial
institutions and derivative market participants

Copyright © 2017 Numerix LLC. All rights reserved. Numerix, the Numerix logo, and CrossAsset are either registered trademarks, or trademarks, of Numerix LLC in the United States and/or other countries.
 ®

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