FRTB is intended to address the undercapitalisation of trading book exposures witnessed during the financial crisis. While the basic goals and ideas of FRTB are simple, it differs materially from the existing Market Risk regulations. FRTB is likely to have a substantial influence in the way firms are organised, and their approach to measuring and reporting risk. There will also be an overall business and operational impact. Banks need to decide whether the costs associated with operational and IT change is justified. Read More
Global commodity trading firms must manage an array of counterparty risks. Historically, firms have relied on multiple tools for counterparty credit risk management, including excel spreadsheets for exposure calculations and reporting and email to communicate credit decisions. To further enhance its counterparty risk management capabilities, Bunge’s credit risk group began an initiative to implement an enterprise-wide approach to credit risk management.
Chartis, a provider of research and advisory services covering the global markets for risk and compliance technology, recently published a report ‘Commodity Trading Risk Management Systems’ in which it analysed the emerging business and technology trends in the market, and how they are influencing commodity trading firms’ solution requirements. Quantifi has been positioned as ‘Best-of-Breed’ provider by Chartis for commodity trading risk management. read more
Quantifi has been shortlisted in the Commodity Business Awards 2016 for Trading, Risk & Portfolio Management (Excellence in Agricultural & Softs) and Commodity Market Development (Excellence in Risk Mitigation). The awards, run by Commodities Now magazine, identify commodity firms and technology providers that have had a significant impact on the commodity markets. read more
The global financial crisis highlighted the importance of liquidity in functioning financial markets. Pre-2008, market participants received easy access to readily available funding and were ill-prepared for events that transpired during the credit crisis Failure to adequately assess and manage liquidity underpinned major market turmoil, triggering unprecedented liquidity events. Read More
by Dmitry Pugachevsky (Quantifi) and Vlad Ender (Kauri Solutions)
The Basel Committee’s overhaul of the market risk capital framework marks a major change to previous versions. FRTB is likely to have a substantial influence in the way firms are organised, and their approach to measuring and reporting risk. For example, at desk level there will be a requirement to monitor SA capital in addition to IMA. Banks need to decide whether the costs associated with operational and IT change is justified. Are more complex products likely to pay for themselves given the majority of the life of a trade will need to be calculated with SA as opposed to IMA? What is the impact of CVA charges?
Counterparty credit risk (CCR) is currently one of the most complex topics for financial institutions. This complexity comes from many different sources but is primarily related to the multiple definitions and uses of counterparty credit risk. Therefore, the first question to ask yourself before modeling counterparty credit risk is why do you want to measure it? Read More
by Dmitry Pugachevsky, Rohan Douglas (Quantifi) and Roman Bedau (Deloitte)
According to IFRS 13, model-based fair value measurements have to take into account all risk factors that market participants would consider, including credit risk. In order to reflect the credit risk of the counterparty in an OTC-derivative transaction, an adjustment of its valuation has to be made. Therefore, depending on the type of derivative, not only does the market value of the counterparty’s credit risk (CVA) need to be taken into account, but also the company’s own credit risk (debit valuation adjustment - DVA) has to be considered in order to calculate the correct fair value. This whitepaper explores the different Fair Value Adjustments and valuation techniques under IFRS 13.
by Rohan Douglas, Dmitry Pugachevsky (Quantifi) and
Jean-Roch Sibille, Aurelie Civilio (Risk Dynamics)
This whitepaper provides some clarity on how to deal with Counterparty Credit Risk (CCR) in the current financial environment, by detailing some of the multiple aspects and challenges involved. The paper also studies the conditions for the effective management of CCR by detailing and comparing capital requirements, identifying inconsistencies in prudential regulations and applying the various capital approaches on some typical portfolio strategies observed within financial institutions.
The credit crisis and regulatory responses have forced banks to substantially update their counterparty risk management processes. New regulations in the form of Basel III, Dodd-Frank and European Market Infrastructure Regulation (EMIR) have dramatically increased capital requirements for counterparty credit risk. In addition to implementing new regulatory requirements, banks are making significant changes to internal counterparty risk management practices. This whitepaper explores some of the key changes to internal counterparty risk management processes by tracing typical workflows within banks before and after CVA desks, and how increased clearing due to regulatory mandates, affects these workflows.