Comments Off on Volcker Rule Reporting Requirements
Below seven keys metrics are expected to be reported as a part of Volcker Reporting. These metrics are applicable for all the trading desks.
1. Risk and Position Limits and Usage
Define the amount of risks that any trading desk is allowed to take. This risk cap can be different for different trading desks
Risk usage must be reported on regular basis by all the trading desks to the bank for tracking and reporting purpose
2. Risk Factor Sensitivities
Define as change in P&L (Profit and Loss) statement due to change in different risk factors used by trading desks
Risk factor sensitivities are dependent on various factors and risk management models
The method to calculate risk factor sensitivities to a common factor need to be consistently applied to all trading desks in a bank
3. Value-at-Risk (VaR) and Stress VaR (SVaR)
These are industry standard measures to determine risk level/exposure of trading desks
VAR Measures the value of maximum loss in an investment position under normal conditions while Stress VAR measure the value of maximum loss in an investment position under stressed conditions
All these are required to be reported regularly to the regulator
4. Comprehensive Profit and Loss Attribution
Daily fluctuations in the profit and loss statement of any trading desks which needs to be done on trade-value and trade-count basis regularly.
Three categories are (a) profit and loss calculation of a trading desk’s existing positions (b) profit and loss calculation of a trading desk’s new positions and (c) residual profit and loss that cannot be attributed from either (a) or (b)
Volatility of comprehensive P&L statement needs to be determined as well
All volatility or variations need to be explained and supported with data for reporting purpose on regular intervals
5. Inventory Turnover
Computed as the ratio of the value of all the transactions over a period of time and the value of all the inventories associated with the same trading desk at the beginning of the period
Needs to be reported after regular intervals
6. Inventory Aging
Defines as the age of trading desk’s both assets and liabilities- Calculated using number of stocks, duration of the stock and average price of the same
Must include two schedules – asset-aging schedule and liability-aging schedule
7. Customer-Facing Trade Ratio(CFTR)
Calculated as the ratio of transactions with a counterparty which is a customers of the trading desks with the transitions with a counterparty which is not a customer of the trading desk
Must be determined and reported on regular intervals