NFA Webinar Margin Model Approval Process November 21

NFA Webinar: Margin Model Approval Process November 21, 2016 Presented by: Jamila Piracci, Vice President, OTC Derivatives Alessandra Riccardi, Director of Capital and Risk

Margin Model Approval Process 2 Exploratory Discussions Model Submission Review / Assessment Approval Monitoring for Ongoing Suitability

Margin Model Approval Process 3 Exploratory Discussions Model Submission Review / Assessment Approval Monitoring for Ongoing Suitability

Margin Model Approval Process 4 Exploratory Discussions Model Submission Review / Assessment Approval Monitoring for Ongoing Suitability To ensure adequate review time, NFA encourages firms to submit models for a September 1, 2017 approval ASAP, but no later than March 31, 2017.

Margin Model Submission: Key Documents 5 § Model development and model validation documents § A qualitative and quantitative description of the portfolio in scope, including asset classes, product types, sensitivities, and material risks not captured in the SIMM § Backtesting results for all portfolios in scope, or a representative sample § Benchmarking results against a corporate risk measure, fully validated, backtested and calibrated in line with the SIMM calibration § Detailed ongoing monitoring plans

Margin Model Approval Process 6 Exploratory Discussions Model Submission Review / Assessment Approval Monitoring for Ongoing Suitability

Lessons Learned—NFA Suggestions 7 § Do not over-rely on ISDA documentation § Theoretical portfolios used for testing purposes must be representative of the firm's business strategy in scope after the compliance date § If a firm is part of a corporate family with oversight from multiple regulators, the documentation submitted must be related exclusively to each separate CFTC Covered SD in scope § Submit detailed ongoing monitoring plans

Lessons Learned—NFA Suggestions 8 § Model developer's documentation must contain enough information to enable the independent implementation of the model by the model validation team § Model validation document must be in line with best practice guidelines (SR 11 -7 or OCC 2011 -12)

Lessons Learned—NFA Suggestions 9 § Perform exhaustive backtesting on the portfolio in scope § Benchmarking must be based on a corporate risk measure, fully validated, backtested and calibrated in line with the SIMM calibration

Margin Model Approval Process 10 Exploratory Discussions Model Submission Review / Assessment Approval Monitoring for Ongoing Suitability

Lessons Learned—NFA Suggestions 11 § Allow adequate time for model review § Perform extensive backtesting and benchmarking § Submit firm-specific detailed model developer's and model validation documents § Submit detailed ongoing monitoring plans

Contact NFA 12 Alessandra Riccardi Director of Capital and Risk 212 -513 -6029 ariccardi@nfa. futures. org