By Tim Versteeg, Chief Sales Officer APAC at NeoXam
For many financial institutions, in a world inundated with so many new rules fundamentally changing how the global banking system operates, it can be hard to keep up to speed with everything. Different regulations, of a course, affect different banks from all parts of the world in a variety of different ways.
And while the big multinationals in established markets such as Europe are currently fixated with the race to be ready for MiFID II, other banks scattered across other corners of the globe have other regulatory concerns. The fundamental review of the trading book (FRTB), a more prescriptive version of its BCBS 239 predecessor, is one of the biggest compliance challenges facing regional banks in APAC. This is because, unlike the U.S or Europe where it is easy to access liquidity, the market is highly fragmented with multiple smaller jurisdictions all at differing levels of maturity.
Traditionally, banks often start by building a base in Singapore, before then rolling out across the rest of the region. But as these firms start increasing their footprint, it becomes much harder to consolidate a full trail of market data which is needed to meet strict FRTB requirements. This problem is exacerbated by the fact that a number of regional banks are trying to handle FRTB data requirements by relying on managed feeds from their trading software. This approach has led to market data costs getting completely out of hand.
Banks will have multiple different data requests going out to the likes of Bloomberg and Reuters, and due to the complex risk scenarios, which will need to be run under FRTB, certain banks could find themselves in a situation where they are repeating requests for data. All because they do not have the processes in place to reuse what they have already requested.
With all FRTB scenarios, a vast amount of market data is going to be needed on a daily basis. And if there is not an optimised process to minimise market data costs, then things can start getting out of hand pretty quickly. The risk engine providers are being told by clients that the market data problem is one of the digest challenges they face. The truth is that if they stick to the same old processes, market data costs are going to explode.
With this problem in mind, how should regional banks go about trying to better manage, control and optimise their market data costs ahead of FRTB coming into force? The answer is governance and data management tools need to be more sophisticated than ever before to meet FRTB requirements. After all, FRTB is far more prescriptive than BCBS 239 in terms of what a firm needs to do with its market data.