Markit is pulling together existing products and new developments to deliver a compliance solution for the market risk capital requirements of the Fundamental Review of the Trading Book (FRTB), which comes into force in 2019.

The solution is based on a modular platform, allowing banks to supplement existing infrastructure and processes as needed, and is designed to enable banks to model and manage market data and risk factors, generate scenarios, and perform capital calculations in line with the regulatory framework.

The platform includes four integrated modules of which two are existing products and two are new developments. The existing products are Markit Analytics Risk Engine, an evolution of Markit Analytics that provides market risk calculation and a stress testing framework, and Markit FRTB Data Service, which includes transaction and historical pricing datasets from MarkitServ and will be used to supplement bank data to meet modellability requirements.

The new elements of the solution are Markit Risk Factor Utility, a software-as-a-service offer for managing and deriving risk factors and generating scenarios for backtesting, profit and loss attribution, and expected shortfall, and Markit FRTB Studio, a lightweight, interactive and intraday aggregation capability that will provide a consistent view of trading book risk and capital measures to support business decisions.

Yaacov Mutnikas, managing director and cohead of Solutions at Markit, explains: “FRTB will potentially have a dramatic impact on banks’ trading operations. Most banks will be challenged to produce the datasets necessary to demonstrate modellability and to manage and validate proxy decisions under new Non Modellable Risk Factor (NMRF) guidelines. Markit’s solution leverages our core strengths across capital modelling, transaction processing and data aggregation to help solve these issues. Recent Markit research on the impact of improved data on capital and NMRFs suggests our aggregated transaction data can result in a 40% reduction in capital requirements compared to banks using only their own data.”

The Markit FRTB solution will be hosted with options to deploy the Analytics Risk Engine and FRTB Studio within a client’s infrastructure. Markit expects to engage development customers in the third or fourth quarter of this year, fitting in with Tier 1 banks that are likely to make decision on FRTB strategies and solutions over the next few months.