Volcker Rule Reporting Requirements

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• on September 14, 2016
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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