Industry brief: FRTB and XVA – Addressing real-time regulatory and business needs with in-memory computing
The Fundamental Review of the Trading Book (FRTB) and (“x”) valuation adjustments known as XVA are arguably the biggest regulatory requirements and business challenges faced by banks with a capital market presence.
FRTB enforces the alignment between front office, XVA, Market and Credit risk models. The Basel Committee predicts FRTB will raise capital requirements by 40% and significantly increase the cost of implementing regulatory requirements when pricing and trading. Even compared to Basel 2.5, the performance and scalability challenges of FRTB and XVA are daunting. The computations for different stress scenarios and back-testing can increase by up to 50x. But the rewards are huge for those banks who calculate the fastest.
Leading banks and fintech companies have already adopted the GridGain in-memory computing platform as the foundation for FRTB and their next generation trading systems. With GridGain, these banks have been able to rapidly implement the required XVA calculations, continuously run their new risk models and price new securities in near real-time.