SOFR drought, CB accounts for CCPs, and the Top 10 Op Risks

The week on, February 29–March 6, 2020

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Fed funds swaptions offer SOFR alternative

Investors dry-run systems using familiar overnight rate, as markets wait for SOFR liquidity to build

ECB mulls wider clearing house access to account facilities

Including CCPs in the Eurosystem may remove the need for them to seek a banking licence

Top 10 operational risks for 2020

The biggest op risks for 2020, as chosen by industry practitioners

COMMENTARY: Into the unknown

Factor-based investors were caught on the hop last week by the market crashes caused by the spread of the coronavirus – and they weren’t the only ones. When carried out the survey work for its Top 10 operational risks for 2020 in mid-January, very few operational risk managers even mentioned coronavirus – only a handful, based in the Asia-Pacific region, saw it as a significant op risk for the year ahead.

It’s safe to say that this has now changed. The outbreak has now spread to almost every country in Europe, east Asia and North America, with major new outbreaks in Italy and Iran, and more than 95,000 cases confirmed and 3,286 deaths. Travel restrictions and quarantines are in place around the world, and economic forecasts have been slashed in the face of simultaneous supply and demand shocks.

In this year’s survey, coronavirus falls under the heading of geopolitical risk, although, like Brexit last year, its effects will be felt across a wide range of operational risk areas. And, like Brexit, the core of the problem is uncertainty. It’s not clear yet how far the epidemic will spread; nor is it clear how serious will be the (economically costly) precautions that governments put in place against it.

And all this is played out against a background of political mistrust. Mixed messages from the UK government have dogged the Brexit process. Insistence that a no-deal exit is all but impossible is followed by briefings that it is highly likely; promises that exit will not be delayed are followed by the announcement of further delays.

Doubt, too, shrouds the full extent of the coronavirus outbreak; not only over the true number of cases, including the uncountable many cases that are too mild to reach medical attention, but also over whether these numbers are being reported accurately. Neither the Iranian nor Chinese governments have – or deserve – reputations for transparency, especially when it comes to information that puts them in a bad light, and the international bodies that uncritically accept their announcements damage their own reputations rather than improving those of the governments. The nascent field of alt data is getting its first serious test as investors seek a second opinion on the true state of affairs.

It’s reminiscent of doubt over the true solvency of various major banks during the 2008 financial crisis – doubt that was built on the foundations of worrying news earlier in the year surrounding the misdeeds of rating agencies. This is not a comforting analogy; and it isn’t meant to be. If increased transparency and better reporting of vulnerabilities was difficult for the financial sector, it will be nigh impossible for authoritarian governments. But in an age when crises, financial and otherwise, do not even pause at national boundaries, governments can at least hope to restrict the spread of fear and doubt: building an infrastructure of honesty is the only way to achieve this.


Weekly notional volumes in vanilla EUR/USD and USD/JPY options totalled $119.6 billion and $105.6 billion, respectively, for the week ending February 28, according to data from the Depository Trust & Clearing Corporation’s trade repository. The EUR/USD trading was the highest weekly total since June 2018, while the USD/JPY options markets saw its highest weekly notional traded since at least the start of 2018 – surpassing the previous week’s surge in activity.



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