Risk magazine - Apr 2022
Articles in this issue
Germany tells EU to PFOF
Proposed ban might need to be dropped to prove practice is harmful
Wrong-way add-on helped LCH mop up VTB default
Margin supplement bought precious time to formulate wind-down strategy
Energy firms call for central bank support to cover margin spikes
EFET warns energy market participants risk being unable to meet “unprecedented margin requirements”
Term SOFR restrictions spark valuation debate
Ban on interdealer trading leaves dealers divided over accounting treatment of in-demand contracts
CDSs may not cover final coupon on $149bn of Russian bonds
Some derivatives contracts expire before end of final grace period for distressed corporate bonds
Super backwardation trips up commodity carry trade
Wrong type of curve derails quants’ commodity carry trade for worst spell in decades
Time’s up for UK banks to unwind swaps with VTB
Majority of contracts have been terminated, but laggards face prospect of default
CCPs urged to widen collateral net as commodities spike
Broader acceptance of emissions certificates and letters of credit could relieve margin pressure
People moves: Exit Buehler for XTX, Spitz quits CA, and more
Latest job changes across the industry
Germany fights for neobrokers’ PFOF rights
Leaked document shows Germany wants to protect ‘anti-competitive’ practice
This is going to hurt: EU-prescribed OTC tape is no cure-all
Market participants sharply divided on utility of a consolidated tape to record OTC derivatives trades
Russian invasion stirs up ‘perfect storm’ for XVA desks
Declining credit quality of Russian companies and spike in inflation threaten CVA and FVA double-whammy for banks
Initial margin – Special report 2022
This Risk.net special report comprises a series of articles that explore the latest developments and key issues emerging in phases five and six, and charts the changing strategies for firms in meeting their initial margin (IM) responsibilities
The top 10 op risks, reloaded
Survey to be expanded as part of benchmarking exercise
Top 10 operational risks for 2022
The biggest op risks for the year ahead, as chosen by senior industry practitioners
Emerging trends in op risk
Karen Man, partner and member of the global financial institutions leadership team at Baker McKenzie, discusses emerging op risks in the wake of the Covid‑19 pandemic, a rise in cyber attacks, concerns around conduct and culture, and the complexities of…
Banks strive for machine learning at quantum speed
Embryonic work on quantum neural networks raises hope of faster, more accurate models
Earnings call analysis 2.0 goes beyond good and bad words
Quants develop new ways to extract signals from media-savvy chief executives and their financial statements
Smaller EU nations stare down giants in capital floor standoff
EU member states clash over severity of internally modelled output floors for cross-border bank groups
What drives the convertible bond market?
Dmitry Pugachevsky, director of research at Quantifi, provides an overview of the burgeoning convertible bond market, including approaches to modelling and its outlook in the current inflationary environment
How Russian stocks still meet EU rules for ‘good governance’
Loose SFDR definitions leave room for Russian state-owned firms to remain in article 8 funds
EC looks to force market’s hand in euro clearing battle
Industry exasperated as commission proposes new mandates and capital penalties for banks clearing in London
Why the Fed should adopt CLFs
The BPI's chief economist explains how the facilities would benefit Wall Street and Main Street
Harmonisation of FRTB data compliance requirements by local jurisdictions is crucial
Banks face uncertainty over changing responsibilities under the Fundamental Review of the Trading Book (FRTB), but potential jurisdictional divergence on new requirements for data vendors could add greater complexity to the roll-out of these new rules
The murky world of transparency disclosures
Lack of data granularity on Russian exposures should prompt a rethink by regulators and banks alike
EU banks kept building Russian exposures as sanctions loomed
Latest EBA data shows the bloc’s lenders cut holdings of government debt securities, but increased commitments to private sector
Citi’s share of cleared swaps hits new high
Latest quarterly increase, alongside that of Goldman Sachs, bucks trend across top US banks
OCC issued $6.1bn VM call in Q4
December options expiration behind highest VM call in six years
EU banks racked up VAR breaches in 2021
Crédit Agricole and ING Bank hit with higher multipliers after exception count rises
Peak IM calls at FICC leapt 13% in Q4
Number of margin breaches at the central counterparty’s GSD also edged higher, as some members increase exposures after margin calculations
Norway oil fund’s derivatives book balloons 192% in H2 2021
Sovereign wealth fund GPFG piled up FX and IR contracts and tapped CDS for the first time
Vulnerabilities arise in financial services as AI and machine learning use balloons
The scale at which financial services firms are adopting artificial intelligence and machine learning continues to grow, bringing with it new dimensions of risk and vulnerability. In a recent Risk.net webinar sponsored by TCS, experts discussed…
A look at asset liquidation from a different angle
Quants propose a novel approach to assess liquidation cost and stress-testing for hard-to-sell assets
Liquidity stress-testing using optimal portfolio liquidation
A methodology to derive liquidation costs and times in OTC markets is proposed
A new fast local volatility model
A local volatility model based on the Bass construction and alternative to Dupire-style models is introduced
Valuation and risk management of vanilla Libor swaptions in a fallback
A procedure to price vanilla European Libor swaptions derived from the SABR model is presented
Optiver aims to gatecrash FX options private party
Dutch non-bank hopes to exploit shift to electronic markets in OTC options, following record $7bn trading day
