Risk magazine - Dec 2018
In this issue: scroll down for all the Risk Awards action; read about the latest CLO fears; find out how Brexit messes with Mifid; and much more
Articles in this issue
If CLO investors flee, defaults could snowball
High yield borrowers relying on a steady stream of leveraged loan issuance that could quickly run dry
Two banks begin moving swaps out of London, pre-Brexit
Part VII transfers underway as Barclays, UBS seek ‘big bang’ trade moves; clients warned of legal, regulatory questions
BlackRock shelves unexplainable AI liquidity models
Risk USA: Neural nets beat other models in tests, but results could not be explained
Banks split on human oversight of AI models
Risk USA: Most firms supervise their models, but one expert says they can be trusted to make decisions
Fed’s Brainard wary of black box AI models in consumer credit
Speech raises explainability issue; says existing model risk guidelines are “a good place to start” in regulating AI
Libor fallbacks set to split cash and swaps
Basis could appear when benchmark dies, with swaps, bonds and loans embracing different fallbacks
Banks warned of capital add-ons for legacy Libor contracts
UK regulators’ letter to firms could be followed by Pillar 2 charge to speed transition to Sonia
Hedge fund giants lead fourth wave of IM candidates
BlueCrest, Capula, Citadel, Millennium and Rokos expected to be in scope for next phase of margin rules
EU lawmakers delay FRTB capital charges
Leaked paper potentially pushes market risk capital charges beyond Basel’s 2022 deadline
People moves: Asia hires at Credit Suisse, new UBS data role, NatWest takes UBS’s Duclos, and more
Latest job changes across the industry
New directions – Diversification of alternative risk premia strategies
Despite a difficult year, investors remain keen to use alternative risk premia strategies. However, current approaches may be less diversified than they appear, especially given cross-contamination in cash equity factors. According to Nomura, a more…
CLO scare: could rated tranches see losses?
Structures are more solid, but loans are dicier, and recovery rates may be disintegrating
Rumble in the IM jungle: how new platforms match up
After testing rival margin services, banks now have to pick a favourite – one has better tech, the other is cheaper
Clearing houses in Asia to overhaul creaking margin models
Fears of Nasdaq-style failures spur rethink of margining practices at HKEx, JSCC, SGX
Anticipating change – How GRC teams can empower the first line of defence
Financial firms are increasingly adopting the three lines of defence framework to manage risk. But how has the model evolved to date and what does the future look like for this key risk management tool?
HM Treasury’s Brexit surprise
Statutory instruments throw up unwieldy divergence in Mifid II and Emir rules
As Brexit looms, Mifid transparency faces the chop
EU law and equivalent UK draft threaten to split and undermine trade disclosure rules
UK pension funds may have to clear, post-Brexit
Delays to Emir review raise fears that UK schemes may lose exemption
Risk Awards 2019: The winners
BNP Paribas wins derivatives house; lifetime award for Craig Broderick; CME takes clearing house award
Derivatives house of the year: BNP Paribas
Risk Awards 2019: French bank adds US and flow heft to old strength in Europe and exotics – but patchy performance will require digital savings to arrive earlier
Lifetime achievement award: Craig Broderick
Risk Awards 2019: Goldman’s long-serving CRO helped bank survive the crisis, and then adapt to new world
Interest rate derivatives house of the year: BNP Paribas
Risk Awards 2019: US commitment pays off with 20% growth, blizzard of big trades on curve and FRA/OIS
Equity derivatives house of the year: JP Morgan
Risk Awards 2019: US dealer shrugged off Steinhoff loss to make timely risk-off call before Vix surge
Structured products house of the year: Societe Generale
Risk Awards 2019: French bank struck Commerzbank deal and ramped up risk transfer focus
Risk solutions house of the year: HSBC
Risk Awards 2019: UK bank helped get Italian NPLs moving; revamped sales effort unlocked host of diverse deals
Currency derivatives house of year: BNP Paribas
Risk Awards 2019: French bank hits options windfall in Turkey during currency crash
Inflation derivatives house of the year: HSBC
Risk Awards 2019: Revamped repack making waves
Credit derivatives house of the year: BNP Paribas
Risk Awards 2019: French bank now a top-tier player in US indexes, as it adds new clients – and new tech
Rates flow market-maker of the year: LBBW
Risk Awards 2019: Landesbank uses e-trading – and Brexit – to boost its euro swap volumes, and its voice
Equities flow market-maker of the year: Citadel Securities
Risk Awards 2019: Risk management overhaul helps market-maker navigate February 5 volatility
Currencies flow market-maker of the year: Citadel Securities
Risk Awards 2019: Credit innovation opens up market-making to previously out-of-reach customers
Streaming liquidity provider of the year: XTX Markets
Risk Awards 2019: Non-bank market-maker doubles direct relationship presence in forex
Quant of the year: Alexei Kondratyev
Risk Awards 2019: A glimpse of the future? Quant uses ML to model term structure and crunch margin costs
Buy-side quant of the year: Gordon Ritter
Risk Awards 2019: Quant uses new tech to tackle old problem of optimal execution
Bank risk manager of the year: UBS
Risk Awards 2019: Bank heeds lessons of past structured products routs to navigate February volatility
Credit portfolio manager of the year: Natixis
Risk Awards 2019: Risk-sharing scheme helps French bank double loan volumes on stable RWAs
Sovereign risk manager of the year: Greece’s Public Debt Management Agency
Risk Awards 2019: PDMA’s innovative €35bn swap programme helps slash sovereign’s interest rate payments
Buy-side risk manager of the year: Citadel
Risk Awards 2019: hedge fund CRO is intent on steering clear of the “history trap”
Asset manager of the year: Goldman Sachs Asset Management
Risk Awards 2019: Firm’s algos pick through earnings call transcripts to figure out what analysts really think
Insurer of the year: Rothesay Life
Risk Awards 2019: Bulk annuity deal unlocks £1 billion of capital in Prudential’s strategic split
Quant hedge fund manager of the year: La Française Investment Solutions
Risk Awards 2019: Focus on correlations helps LFIS stand out in sector’s horrible year
Investment product of the year: JP Morgan
Risk Awards 2019: JPM’s big February winner points way forward for investable indexes
Quant research team of the year: Deutsche Bank
Risk Awards 2019: Deutsche’s quants dig for alpha
Index provider of the year: ERI Scientific Beta
Risk Awards 2019: Clients are flocking to Edhec offshoot for its bookish approach
Exchange of the year/exchange innovation of the year: CME Group
Risk Awards 2019: FX Link, SOFR futures and Nex acquisition headline banner year for Chicago bourse
Clearing house of the year: CME Clearing
Risk Awards 2019: Clearer moved early to ramp up default resources and counter threat of February volatility spike
Clearing house innovation of the year: Eurex Clearing
Risk Awards 2019: CCP’s incentive scheme takes on LCH to capitalise on Brexit uncertainty
OTC client clearer of the year: JP Morgan
Risk Awards 2019: European clearing clients found a champion in the US dealer
OTC trading platform of the year: Trad-X
Risk Awards 2019: From a D2C Clob to CCP-specific pricing, Trad-X isn’t scared to rock the boat
OTC trading platform innovation of the year: Tradeweb AiEX
Risk Awards 2019: Expansion of automation tool to swaps trading supports soaring derivatives volume
OTC infrastructure service of the year: Quantile Technologies
Risk Awards 2019: Compression provider has been quick to respond to market needs, say dealers
Fintech start-up of the year: TransFICC
Risk Awards 2019: Flexible, fast, cheap – UK-based firm trying to take fuss out of fixed-income trading
Law firm of the year: Linklaters
Risk Awards 2019: Linklaters at forefront of major changes to OTC derivatives market
Technology vendor of the year: FIS Global
Risk Awards 2019: Software engineers respond to new challenges in traded risk
The disputed terrain of model risk scoring
There is no concord on how banks should police their model risk. But two Fed economists have an idea
Q&A: CFTC’s Quintenz talks bitcoin, Nasdaq breach, algo trading
On cryptocurrencies, commissioner worries about spot market, but has confidence in big futures exchanges
Structured product platforms take off in Asia
Multi-dealer platforms Contineo and FinIQ seek to replicate success in Europe’s fragmented market
Banks warned on holes in EU’s proposed Brexit relief
Potential EC, French and German no-deal relief is expected to be short-lived and incomplete
Imperfect harmony: industry balks at EU foreign venue rules
Proposal could force non-EU platforms to choose between following Mifid II or ditching EU firms
The funhouse mirror of CLO equity hedges
CLO equity cannot be directly hedged, so people are buying approximations and hoping for the best
Blockchain won’t help the UK to go P2P
Legal and practical problems mean blockchain is unlikely to change the UK’s grid, writes energy expert
Doing well by doing good
Drug approval swaps and megafunds can channel capital towards world’s greatest problems, writes MIT’s Lo
What’s Finnish for ‘too big to fail’?
Strange case of Nordea highlights flaw in G-Sib assessments
Op risk data: SocGen hit with $95m money laundering fine
Citi, JP Morgan settle Sibor rigging claims; Europe matches US on AML fines. Data by ORX News
Credit data: how US industries have fared under Trump
At the halfway point in the administration, time for a credit check, writes David Carruthers
Swaps data: volumes up amid volatility
Data shows strong growth in cleared OTC derivative volumes in second half of 2018, says Amir Khwaja
Degree of influence: are machines starting to learn finance?
This year's analysis recognises a turning point in machine learning applications
You don’t need to sacrifice accuracy for flexibility
BAML quant proposes option pricing model that softens conflict between the two properties
Local stochastic volatility: shaken, not stirred
Dominique Bang introduces a novel LSV approach to term distribution modelling
The Garch linear SDE: explicit formulas and the pricing of a quanto CDS
A new closed-form approximation is applied to quanto CDS pricing
From trend follower to trailblazer
New fund targets commodities others are “scared” to trade – from asphalt to glass panels
