In May 2012, the Basel Committee on Banking Supervision (BCBS) introduced the Fundamental Review of the Trading Book (FRTB) as a consultative paper. Is the banking community ready?
Sheena Clark, Head of Regulatory Services, CJC
In May 2012, the Basel Committee on Banking Supervision (BCBS) introduced the Fundamental Review of the Trading Book (FRTB) as a consultative paper. This paper set out a revised market risk framework and more stringent trading book capital requirements in the wake of the credit crisis.
The measure will create a more definitive distinction between firms’ trading books and banking books, with each inviting different levels of capital coverage. The final paper, released on 15th January 2016, set a tentative compliance date of 2019. However, since banks need to show a year’s worth of observable prices ahead of this, preparations should be in place by January 2018.
So it’s on its way. But is the banking community ready?
Outbound, or contributed, data is affected by this regulation and yet many organisations don’t have a clear picture of what prices they contribute, to whom and who can see it downstream. And it’s not just FRTB. MiFID II, MiFIR and BCBS239 all impact pre-trade Over the Counter (OTC) data.
Currently, though most banks have robust market data management, processes and protocols in place, teams are generally only responsible for inbound consumption. Is there any clarity around who takes control of outbound data in the organisation? Is there any oversight of global contributed data?
In turn, this raises a raft of additional questions that need to be answered:
Which desks contribute rates to third parties?
Which asset classes are affected?
Which countries contribute prices?
Which external clients can see proprietary data – can even competitors see it?
Are banks paying to receive their own contributed data back?
At a more general level, has anyone questioned why most contributions to vendors are free? Or, since we’ve see growing levels of fines from global regulators around benchmark data – could contributed data be next?
Organisations that struggle with these questions may not be ready for FRTB.
Help is available. CJC have strategic division, a key focus area for which is helping banks and brokers to take control of the prices they publish to the market through data vendors or submissions to benchmark rates. We’re already in extensive discussions with a number of tier one banks, outlining how we can provide a strategic review of all the operational processes around pre-trade data publishing.
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