Calypso Adds New Module Amid Looming Basel III Counterparty Credit Risk

The Basel Committee's final standard on a standardized approach for the measurement of counterparty credit risk exposures by financial firms is looming over the industry and big banks in particular. The changes include a new approach which is not based on models, but rather on a standardized approach.

Companies will have to start measuring counterparty credit risk associated with OTC derivatives, exchange-traded derivatives, and long settlement transactions in a new way starting form the 1st of January 2017. Calypso is one of the capital markets software providers that are adding new tools for companies to address the new requirements.

The new standardized approach for counterparty credit risk dubbed SA-CCR will be replacing both the Current Exposure Method (CEM) and the Standardized Method (SM) in the capital adequacy framework.

January 2017 and Basel III Challenging the Banking Industry

The Basel Committee is aiming to develop a new methodology which is sensitive to risk and is able to differentiate between margined and un-margined trades, while assessing whether netting of the exposure is beneficial for the institution.

The many regulatory initiatives specified by Basel have significantly altered the landscape on the Street

The SA-CCR limits the need for discretion by national authorities, minimizes the use of banks' internal estimates, and avoids undue complexity by drawing upon prudential approaches already available in the capital framework. It has been calibrated to reflect the level of Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term observed over the recent stress period, while also giving regard to incentives for centralized clearing of derivative transactions.

The Chief Product Officer of Calypso Technology, Pedro Porfirio, said: “The many regulatory initiatives specified by Basel have significantly altered the landscape on the Street. The changes in capital calculations that these models will trigger mean that banks need a reliable partner to help manage the transition.”

“Not only do they need a robust calculation engine to help them meet the regulatory deadline, but they face an urgent need to determine how the new rules will impact their business,” Porfirio explained.

Calypso is offering its SA-CCR solution as a module within its Calypso Risk & Capital product suite. The company has added a Cloud Cloud The cloud or cloud computing helps provides data and applications that can be accessed from nearly any location in the world so long as a stable Internet connection exists. Categorized into three cloud services, cloud computing is segmented into Software as a Service (SaaS), Infrastructure as a Service (IaaS), and Platform as a Service (PaaS). In terms of trading, the versatility of the cloud service allows retail traders the ability to test out new trading strategies, backtest pre-existing conc The cloud or cloud computing helps provides data and applications that can be accessed from nearly any location in the world so long as a stable Internet connection exists. Categorized into three cloud services, cloud computing is segmented into Software as a Service (SaaS), Infrastructure as a Service (IaaS), and Platform as a Service (PaaS). In terms of trading, the versatility of the cloud service allows retail traders the ability to test out new trading strategies, backtest pre-existing conc Read this Term based option to calculate SA-CCR which will provide details on Potential Future Exposure, Exposure-at-Default and execute all capital calculations while adhering to the regulatory framework.