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GreySpark believes that banks should proactively lean into the necessary business and process changes for the FRTB as approaching it from a granular and methodical perspective is necessary to ensure correct compliance. This approach should be grounded by crucial data-based recommendations, which will help banks complete their compliance mandates in the most advantageous manner possible.

OFFLOADED

RISK

Sellside banks will first need to complete a significant internal assessment to determine whether the revised Standardised Approach or the revised Internal Models Approach is appropriate for each desk.

Banks will consequently compress, discard or offload certain asset class instruments and desks that they cannot find the capital for and subsequently cannot maintain.

Risk-taking behaviour will decrease as banks will favour holding onto short-term trading book instruments which require less on-hand capital. Streamlined, simpler financial products could also become the norm.

Liquidity will decrease, deepening the already present liquidity crisis, particularly within the fixed income market.

However, both approaches stand to greatly increase the amount of capital each desk will have on hand, ensuring that many banks will be unable to maintain their normal operations.

MARKET RISK

TRADING DESKS

AN ASSESSMENT OF HOW THE SELLSIDE BUSINESS MODEL CAN BE STRATEGICALLY REORIENTED

The FRTB addresses the systemic risks Tier I and Tier II banks pose to the healthy functioning of global capital markets. The regulation updates the Basel regime by delineating between the banking and trading books, establishing a global standard for risk calculation and reconfiguring liquidity horizons for a number of asset classes. As a result, risk assessment and management will ultimately become trading desk-level specific.

THE FUNDAMENTAL REVIEW

OF THE TRADING BOOK IN THE EU