What is ISDA SA

Benchmarking?
ISDA benchmarking of standardized approaches (SA) helps firms, solution providers and regulators achieve
consistent and accurate implementation of the standardized approaches for regulatory capital for market risk
(known as the Fundamental Review of the Trading Book, or FRTB), counterparty credit risk (CCR) and credit
valuation adjustment (CVA) risk.

Why ISDA SA What are

Benchmarking? the benefits?
• ISDA has developed a unique technical expertise on FRTB-SA, and has been at the • ISDA has been working with a group
forefront of industry and regulatory discussions on FRTB-SA design, impact and operational of firms on the FRTB-SA benchmarking
aspects. initiative since 2018, and there has
been regular engagement from
• ISDA has also become the go-to organization for discussion on all aspects of the
regulators throughout the process.
standardized approach, including impact assessment and implementation, and is uniquely
positioned to assist regulators in benchmarking standardized approaches by: •P
 articipating firms benefit from a
peer-to-peer review of their SA model
A. D
 esigning unit tests to ensure the fitness of implementation across firms using a
implementation, enabling them to
prescribed input;
address possible interpretation issues
B. O
 verseeing a hypothetical portfolio exercise (HPE) to identify, assess and explain any in the regulatory text.
observed variances, and coordinating remediation where necessary (eg, through Basel
• F ollowing interest from other entities
Committee on Banking Supervision FAQs).
and regulators, ISDA has expanded
• T he unit test and HPE together form part of an assurance framework for both firms and the scope of this initiative to cover
regulators. other participating firms and other
capital models, including SA-CCR
• ISDA was selected in the UK to help coordinate the first FRTB-SA benchmarking exercise
and basic approach/SA-CVA.
and run an industry working group, leveraging the capabilities and experience gained in
performing similar exercises for the ISDA Standard Initial Margin Model. •C
 urrently, 59 firms, 9 licensed
vendors and 16 regulatory authorities
• T he exercise has been extended to cover other jurisdictions, including the EU under the
are involved in the benchmarking
second Capital Requirements Regulation. It will cover the US once the Notice of Proposed
initiative.
Rulemaking is published by US agencies.

About ISDA
Since 1985, ISDA has worked to make the global derivatives markets
safer and more efficient. Today, ISDA has over 925 member institutions
from 75 countries. These members comprise a broad range of
derivatives market participants, including corporations, investment
managers, government and supranational entities, insurance
companies, energy and commodities firms, and international and
regional banks. In addition to market participants, members also
include key components of the derivatives market infrastructure, such
as exchanges, intermediaries, clearing houses and repositories,
as well as law firms, accounting firms and other service providers.
Information about ISDA and its activities is available on the
Association’s website: www.isda.org. Follow us on Twitter @ISDA.

©2021 International Swaps and Derivatives Association, Inc. www.isda.org

Unit Test Unit Test Process Flow
Goal: Ensure a consistent and Provide: Unit test Report to national
1. Sensitivities regulators (if requested):
accurate implementation of 2. Test combinations 1. Test combinations
the standardized approach 3. Results 2. Assumptions
3. Summary results
by each bank, by testing the
risk engine aggregation (not
ISDA

Unit test: Design and build

valuation models). By SbM Risk Class and DRC Collate results across
Process: Each bank runs its Detail of combination Test and firms and prepare
inputs agreed compare with summary report
SA engine using prescribed with working group ISDA results
input sensitivities, bucketing and
other reference data (SA-CRIF1). Survey to decide on Industry peer
Combinations are designed variants available to review of the
adapt to firm’s system unit test template Analysis and
to test all possible risk types. investigation of Firms to report
Assumptions and interpretation discrepancies material actions
Detailed calculations Survey to agree
issues are agreed and logged to provided to identify root assumptions to
undertaken to match
ISDA results
ensure a common set of results,
Participant

cause of discrepancies be used

which feed into the global FRTB
FAQ process. Any differences
from a golden source of results Compare own results with Investigate root
Format SA-CRIF
need to be explained. file for firm use
SA calculator ISDA golden source and cause of potential
report summary to ISDA discrepancies

1 Common risk interchange format

HPE HPE Process Flow

Goal: Obtain a preliminary
estimate of the potential for
variation in risk-weighted assets
across firms using hypothetical
portfolios.
ISDA
Provide: HPE guidelines
Risk factor
Document findings Report to national
1. Portfolio definition on divergence from regulators (if requested):
analysis
2. Close of business dates median result 1. Aggregated data points
3. Reporting currency 2. Documented findings
4. Reporting formats
ISDA produces output
(Sb, Kb based on low,

medium, high
correlation scenario)
Process: Each bank generates
risk measures across Reconcile ISDA output ISDA to consolidate
hypothetical portfolios. Results ISDA to run the with participant’s participant’s output
participant’s SA-CRIF submission and generate and disclose agreed
are submitted by risk class and through its SA engine drill-down analysis aggregated data points
risk measure. Firms also submit
input data using the SA-CRIF
format to enable further drill
Firms to report results
down into any differences Book HPE instruments to national regulators
in results. ISDA generates (if requested)

aggregated and anonymized

Participant

results for the whole group. A

detailed analysis is prepared Produce output (Sb , Kb based
Report sensitivities
for each institution to explain Generate sensitivities
and bucketing SA calculator
on low, medium, high
and allocate buckets correlation scenario) using the
variances. (SA-CRIF) to ISDA
ISDA HPE reporting template

Subject to non-disclosure agreement

For more information on ISDA SA benchmarking, contact ISDABenchmarking@isda.org

ISDA® is a registered trademark of the International Swaps and Derivatives Association, Inc. www.isda.org