Eyeing Risk ‘Modellability’


IHS Markit and Oliver Wyman Join to Develop Risk Factor Modellability Service for FRTB

IHS Markit – LONDON – IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions, has engaged Oliver Wyman to support the build of a comprehensive methodology to help banks determine risk factor modellability under the new Fundamental Review of the Trading Book (FRTB) standards. The methodology will be developed within Markit’s FRTB Solution.

The ‘out-of-the-box’ methodology is being designed to significantly reduce the need for time-consuming and costly development and analysis work by banks. It will also help firms avoid unnecessary capital penalties under FRTB by letting them know which risk factors are modellable and which are non-modellable risk factors (NMRFs).

“Modellability of risk factors is among banks’ top concerns when it comes to FRTB,” said Yaacov Mutnikas, executive vice president of Financial Market Technologies at IHS Markit. “By providing a validated methodology that addresses this issue, we are giving banks the confidence that they are classifying risk factors correctly. With Oliver Wyman’s support, we are expecting to produce the first round of results early next year showing which elements of the risk factor universe are modellable and which are not.”

Oliver Wyman will help define the methodology within Markit’s Risk Factor Utility (RFU), a flexible risk factor modelling environment. It will be based on data from Markit’s FRTB Data Service, which combines trade data from the firm’s industry leading MarkitSERV platform with trade data contributed by partner banks. Both are components of Markit’s broader FRTB Solution.


“We will support IHS Markit with the development of the methodologies underlying the modellability mapping and bucketing procedures of Markit’s RFU and together we will refine them with the partner banks,” said Barrie Wilkinson, co-head of finance & risk practice, EMEA at Oliver Wyman. “This is a very timely development and a great example of how banks can work together with infrastructure providers to better manage costs.”

It is envisioned that the methodology could be adopted in its entirety or used as a starting point by banks wishing to develop their own proprietary methodology.


For further information on the Markit FRTB Solution and its individual components, please visit: http://www.markit.com/product/frtb-solution

Related articles

  1. Growth in passive investing presents an opportunity for the exchange group's index business.

  2. Contributed Content

    Update on Trading Analytics

    With Alastair Clarke, European Equity Trader, Capital Group

  3. More than 15 sell-side and 20 buy-side firms have joined the platform.

  4. Analytics will cover portfolio construction, pre-trade risk and post-trade performance attribution.

  5. Daily Email Feature

    Data Analytics in Focus

    Virtu aims to help clients interact with markets more efficiently so they can mitigate risk and lower costs.