SEC CHAIR worried about corporate bond liquidity
CVA standardised approach under threat
FSOC could be victim of Trump election
COMMENTARY: Fragmentation risk
The Risk USA conference last week may have been slightly overshadowed by events elsewhere in the country, but there was still plenty to discuss outside the election bubble. Several speakers highlighted different ways in which the industry focus on liquidity could pit large asset managers against small, and both against the high-speed trading sector. The Securities and Exchange Commission's new rules on liquidity risk management will for the first time take overall holding size into account when calculating the likely liquidation time of a portfolio, and this could penalise large funds, because their holdings even of highly liquid securities will be too large to liquidate quickly.
Arguments over the benefits of new bond trading venues also divided the industry. Citadel's fixed income chief operating officer Nicola White complained that the result would be a fragmented market, in particular for US Treasuries, that would disadvantage traditional players in favour of high-speed traders. But David Rutter, head of one of the new venues – which also has a keen focus on distributed ledger technology – argued that smaller players were crowded out on the large traditional venues.
Outgoing SEC chair Mary Jo White also voiced fears about a lack of liquidity in the corporate bond market, but admitted to the US Congress that she had no clear answer as to the cause. Off-the-run liquidity has been a particular industry concern for some time; Risk.net reported on efforts to address it earlier this year.
STAT OF THE WEEK
QUOTE OF THE WEEK
"[The central counterparty stress tests] found quite a bit of diversification. No single clearing member had the largest loss in more than six of the 36 tests and no two firms generated the largest losses at more than one guarantee fund in any scenario. The clearing houses achieved ‘cover two' – in other words, the required resiliency standard [of surviving the default of their two largest clearing members] in every single instance, 100%, and we found these pre-funded resources allowed them to exceed that cover two standard" – CFTC chairman Timothy Massad
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