• 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

     

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