FRTB Definitions and Taxonomy – Quick Review
- Business Strategy:
- A document, submitted by a Head Trader and sequentially approved by bank management and national supervisor, which describes by business strategy and oversight framework for a given RTD
- Default Risk Charge:
- A FRTB-prescribed capital add-on under both the IMA and SA frameworks, to account for the potential JTD risk within a given risk factor
- Independent Risk Transfer Desk (IRT):
- An RTD with specific additional characteristics designed to facilitate the transfer of risk factors across the trading-banking book boundary when required and in a controlled fashion
- Jump to Default (JTD):
- A term used to describe the cliff impact on an instrument’s value when an obligor defaults. JTD is akin to default risk, but is distinct from migration or credit spread risk
- Operating Sub-Desks (OSDs):
- A group of traders or trading accounts operating under the direction and approved framework of a supervising RTD. OSDs do not require specific regulatory approval
- Permissible Instruments:
- Instrument types designated as approved for trading in specified RTDs as documented and approved in that RTD’s business strategy document
- Regulatory Trading Desk (RTD):
- A group of traders or trading accounts that implements a well- defined business strategy operating within a clear risk management structure and governed by a Head Trader. All RTDs must be approved by the national supervisor
- Traders or Trading Accounts (TTA):
- A group which comprises the RTD, overseen by a Head Trader