Forex algos, Emir and quant fundamentalists

The week on Risk.net, June 1-7, 2019

A powder keg in forex: the prime broker business

Brokerages look at high-speed algo trading paired with bloated credit limits – and shudder

Emergency docs: funds rush to meet EU’s revised Emir rules

Isda asks for six-month extension as previously exempt funds hit with margin requirements

Stock-pickers take note: the quants are coming

Quant funds are turning their hand to fundamental investing

COMMENTARY: Knowledge is power

This week, Risk.net looks from several different angles at the nexus of alternative data and machine learning. Quant-fundamental investing promises to bridge the gap between stock pickers and highly leveraged quants by using artificial intelligence to process huge volumes of data in order to support a long-short equity strategy covering thousands of stocks at once.

Fleets of new commercial earth observation satellites promise unparalleled insight, hour by hour, into the prospects of mines, factories and other businesses around the world – from stockpiles of ore to traffic flow in supermarkets. And in our weekly podcast, Hans Buehler of JP Morgan describes the new deep hedging approach that could see thousands of hedges run in parallel and automatically by machine learning systems.

The possible deployments for these interlocking technologies are many, but one in particular was highlighted by Risk.net this week: in China, where equity markets are volatile and unpredictable at the best of times. Now, in the wake of the regulatory takeover of commercial lender Baoshang Bank, and continued tariff wars with the US, fears are rising about the prospects for continued growth.

With barely a decade of conventional information to build on, alternative sources of information are vital. Neuberger Berman’s chief data strategist Michael Recce points out that the shock of Apple’s low China sales figures in January this year could have been anticipated: “Everyone was surprised, but all those phones have carriers, make calls and have apps. The data is absolutely in the world, but it is not in the market.”

New tools for insight into the Chinese economy and financial markets will not arrive a moment too soon.

STAT OF THE WEEK

Open interest in short-term interest rate options – with maturities of one year or less – surged $12.3 trillion, or 23%, to$67 trillion notional quarter-on-quarter and 12% year-on-year.

QUOTE OF THE WEEK

“We can put on boxing gloves and dance around debating about the right levels, but what really matters is the effect of falling above or below the threshold” – David Bailey, Bank of England, on defining the systemic importance of central counterparties

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