© Copyright ACTUS 2013 1 Date: 4/4/19
ACTUS: The Smart Contract Standard for Regulatory Oversight of Financial Risk
FinTech Wholesale Working Group, FDIC
Washington, DC
January 11, 2017
Jefferson Braswell
ACTUS Financial Research Foundation
© Copyright ACTUS 2013 2 Date: 4/4/19
Today’s Presentation
v Uniqueness of Financial Contracts
v Smart Financial Contracts
v Use Case for Smart Financial Contracts
v The ACTUS Open Source Smart Contract Standard
v Annex: • Using the ACTUS Standard (Examples)
• Legacy Data with the ACTUS Standard
© Copyright ACTUS 2013 3 Date: 4/4/19
The ACTUS Open Source Smart Contract Standard
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Algorithmic Contract Types Unified Standard
• The ACTUS Financial Research Foundation is building a data standard specifically designed to enable the full range of financial analyses needed for risk management and financial regulation
• ACTUS consists of
1. A Data Dictionary which defines all contract terms required for financial analysis
2. A set of Contract Types (CT) which are computable algorithms (smart contracts) that are able to precisely generate state-contingent cash flows at the individual contract level
§ To our knowledge, there is no other current effort that aspires to create a data standard with this capability
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ACTUS Contract Types
ACTUS Contract Types
Basic Combined
Maturities Credit Enhancements
Non- Maturities
Securiti- zation
Credit Derivatives Options Symmetric
CDSWP PAM
ANN
NAM
LAM
ANX
NAX
LAX
CLM
PBN
CSH
UMP
STK
COM
CEG
CEC
SWAPS
SWPPV
FXOUT
FUTUR
OPTNS
CAPFL
BNDCP
BNDWR
CFXOP
IRXOP
STXOP
CMXOP
FXXOP
SCRMR
SCRCR TRSWP
CLNTE
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The ACTUS Approach
State of the
Risk Factors
Contract Terms
Expected State
Contingent Cash Flows
Financial Analysis Results
The Analysis Assembly Line:
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Contracts, Algorithms and Cash Flow Patterns
Financial contracts are the deterministic component of financial markets: • The algorithms are realized in software modules that
reflect the logical and mathematical representation of legal financial agreements
• The number of cash flow patterns is limited: Despite the
large number of different financial products, many differences fall away when the focus is on cash flow
• Analysis: With a consistent, tested and validated
algorithmic representation of financial contracts, analysts are free to bring any analytical approach/model to bear
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The Model
Market Risk Factors
Credit Risk Factors
Behavior Risk Factors
Risk Factors Inputs
e1 e2 e3 en-1 en …. t
Contract Events
Liquidity Value Income Analytical Results
Expected Cash-Flows cfl1 cfl2 cfln
t ….
Financial Contracts (Data + Algorithms)
Contract Inputs
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Business Rationale: “The Problem”
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Business Process and Infrastructure
Business Data
Transactions
Economic Data
Reporting
Balance Sheet
Income Statement Quarterly Reports
Regulatory Filings
Market Data
Business Analytics
Business Staff
Counterparty Data
Business Line Management
Operational Systems
Executive Management
Information Technology
Operational Systems
Operational Systems
Information Technology
Information Technology
Business Analytics
Business Staff
Counterparty Data
Business Analytics
Business Staff
Counterparty Data
Business Line Management
Business Line Management
© Copyright ACTUS 2013 11 Date: 4/4/19
Supervision of Financial Service Entities
F S E
Reporting
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Business Rationale: “The Solution”
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Financial Product Contracts Financial Product Contracts
Mortgages
Deposits
CreditCards Commodities
and Futures
CommercialLoans
Derivatives
MarketSecurities
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Financial Contract Data Model: Business Requirements and Objectives
Ø Cover the complete spectrum of financial products of full-service financial institutions with an adaptable and extensible model
Ø Minimize implementation risk and cost with a “non-invasive”, read-only data extraction strategy
Ø Include all contract-level terms required for transaction processing and forward-looking cash flow analysis
Ø Provide a tunable aggregation and data compression methodology with goodness-of-fit metrics
Ø Establish a risk analysis results data repository for big data analytics and flexible regulatory reporting capabilities.
Ø Maximize data accuracy and quality with metadata management and code-generation productivity tools
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Financial Contract Operational Model Necessary, Sufficient and Electable
E X T R A C T , T R A N S F O R M , L O A D
P R O D U C T I O N S Y S T E M S
Contract Type
CounterpartyIdentification
Contract Terms
Relationship Type
Financial Contract
CounterpartyInformation
CounterpartyBusiness Context
Relationship Information
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e1 e2 e3 en-1 en ….
t
cfl1 cfl2 cfln
t
….
Contracts
Liquidity Value Income
( Algorithmic Contract Type Unified Standards )
© Copyright ACTUS 2013 17 Date: 4/4/19
Market Risk Factors
Credit Risk Factors
Behavior Risk Factors
Risk Factors Inputs
e1 e2 e3 en-1 en …. t
Contract Events
Liquidity Value Income Analytical Results
Contractual Cash-Flows cfl1 cfl2 cfln
t ….
Financial Contracts (Data + Algorithms)
Contract Inputs
ACTUS Process Model
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ACTUS-enabled Risk Analysis
P R O D U C T I O N S Y S T E M S
R E S U L T S D A T A S E T S
A C C E S S T O S T A N D A R D I Z E D A C T U S D A T A
E X T R A C T , T R A N S F O R M , L O A D
Contract Type Counterparty ID
Contract Terms
Relationship Type
Counterparty DataRelationship Data
e1 e2 e3 en-1 en
t
cfl1 cfl2 cfln ….
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Static Versus Dynamic Analysis
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Volatility in t0 (σ)
Time to Maturity
Yield
Static Analysis Liquidation View
Time
Liabilities
Assets
t0
Existing Business
Existing Business
ΔNPV
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...
P&L
Yield curve t1 Yield curve t2
Time to Maturity
Yield curve t0 Yield
Spread
Dynamic Analysis Going Concern View
Time Liabilities
Assets New Business
New Business
t0
Existing Business
Existing Business
• New volume /reinvestment • Type of new business • Pricing
BS Liquidity
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Flexible Analytical Results
• Because ACTUS-based analysis starts at the level of the individual financial contract, there is maximum flexibility with respect to levels and types of aggregation of the analytical results that are possible.
• Any selection and combination of contract-level elements can be used as the parameters for aggregation and classification.
• This flexibility insures that analyses are not constrained by prior assumptions as to what aggregation criteria to use.
© Copyright ACTUS 2013 23 Date: 4/4/19
ACTUS Financial Research Foundation
ACTUS Financial Research Foundation is building a set of 33 smart financial contracts
The ACTUS Contract Types (CTs):
§ Cover the overwhelming majority of financial market instruments
§ Generate contract-specific, precise forward-looking cash flows
§ Are open source and available to all without charge from the not-for-profit ACTUS Foundation
ACTUS Financial Research Foundation has benefited from the financial support of:
§ The Alfred P. Sloan foundation § Deloitte Consulting § Stevens Institute of Technology § Zurich University of Applied Sciences
© Copyright ACTUS 2013 24 Date: 4/4/19
ACTUS Financial Research Foundation
www.actusfrf.org
For inquiries, please contact:
Jefferson Braswell
• CEO and Founding Partner of Tahoe Blue, a data standards and risk management advisory.
• Member of the Board of Directors of the Global LEI Foundation (GLEIF)
• Chair of the ACTUS Financial Research Foundation Board of Governors
• Email: [email protected]
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