Risk magazine - Dec 2022
In this month’s collection: Europe’s pension funds prepare to clear; relative value trades feel the squeeze; the flaws in SEC’s Treasuries clearing plan; and much more.
Cover art: Breeze, by Adele Love
www.anne-mariebainbridge.co.uk
Articles in this issue
Leaked EC clearing proposal leaves question mark over LCH
UK CCPs expected to secure equivalence, but “vague” active accounts mandate sparks fears
Regulator to ‘reflect’ on IRRBB shocks after rates leap
Once considered too harsh by banks, stress scenarios may even prove too generous
Spat over Toyota deal stalls vote on easing term SOFR curbs
ARRC concerned by use of forward rate in securitisations, stands firm on swaps restrictions
Why the search for cheapest-to-deliver bonds just got harder
Interest rates uncertainty triggers bargain hunt among futures traders
Fed official confirms US targeting 2025 for Basel III adoption
US regulators also preparing more guidance on concentration risk for outsourcing providers
Citi quants’ AI model aims to hedge earnings surprises
Machine learning tool forecasts effect of shocks on implied volatility surfaces in minutes
Illiquid assets throw UK pensions off balance
Collapse in equity and bond prices leaves some funds with outsized exposure to private holdings
UMR driving up volumes in total return futures as a beta replacement solution
In this feature, Stuart Heath, director, equity product design at Eurex, discusses the development of total return futures (TRFs) as a beta replacement in the context of the final roll-out of uncleared margin rules (UMR), and explores with Amy Borgquist,…
People moves: Capitolis lay-offs, UBS’s new risk chief, and more
Latest job changes across the industry
The final countdown: Europe’s pension funds get ready to clear
With clearing exemption due to end next June, EU funds try to learn from UK’s LDI mistakes
Machine learning and AI in model risk management: a quant perspective
Statistical risk models face issues of validity as unprecedented events and social phenomena occur. However, artificial intelligence (AI) and machine learning can assist models in maximising accuracy. By Tiziano Bellini, head of risk integration…
Relative value trades face Treasury clearing squeeze
SEC’s clearing proposals may hurt levered basis trades and worsen illiquidity in off-the-run bonds
No clear gain: banks question SEC’s Treasuries clearing plan
US Treasuries dealers say clearing won’t help post-Covid illiquidity – and could harm it
Market rejects EU attempts to isolate energy firms via Emir
Participants warn proposals would push up hedging costs for little systemic protection
Offshore renminbi: breaking new ground for a new era of safe settlement
With offshore renminbi (CNH) now one of the world’s five most traded currencies, Alex Knight, global head of Emea at Baton Systems, explains the importance of extending the ease and speed of riskless, payment-versus-payment (PvP) settlement access across…
Who blew up gas prices? (It wasn’t just Russia)
Government buying, climate risk and short squeezes may have led to ‘horrendous’ gas market margin calls
Equity swap clearing: LSEG aims to sway naysayers
Initial margin, SA-CCR and Archegos fuel comeback of total return swap clearing, but scepticism remains
The quant investor harnessing the power of ants
Swarm Technology designs network of trading algorithms that mimics hive mind of insects
French resolution may lead EU to adopt US-style rules for PFOF
German and Czech proposals would also put kibosh on commission’s mooted ban on the practice
Marginal gains: buy side gets set for cross-product margining
Faced with higher margin and funding costs, more buy-side firms are looking to optimise margin requirements across their fixed income portfolios. Here Lee Bartholomew, global head of FIC product design at Eurex, and Per Haga, global head of prime…
As interest rates surge, bankers fret over last year’s models
IRRBB modellers trying to predict client behaviour have little relevant data to fall back on
FX primary venues seek reversal of fortunes
EBS and Refinitiv fight to restore market share – but bilateral trading may be too entrenched, dealers say
Role of the dice: how Susquehanna puts game theory to work
One of the world’s largest options traders uses game theory – and poker practice – to get results
The FCM model is not dead yet
Delivery risk means algos should never supplant humans in commodity futures markets, argues exchange executive
How risk managers can stop the FTX infection from spreading
Segregation and transparency can save investors from imploding crypto trading venues
Credit risk: best practices for predicting future risks
In today’s uncertain times, credit risk managers are under increasing pressure to provide robust, forward-looking insights on counterparties. Fitch Solutions explores the key pain points in the process and crucial steps to improving data quality
What happens when a bank drops off the systemic risk radar?
Russia’s Sberbank skipped this year’s G-Sib assessment. But just because a bank is invisible doesn’t mean it no longer poses a risk
Nomura loses $18m on derivatives CVAs and DVAs
Net result from own and counterparty credit spreads swings to negative
ABN Amro has EU’s biggest trading volume, new indicator shows
Bank’s activity in secondary market is 2.4 times Deutsche Bank’s
UBS cuts liquidity valuation adjustments to record low
Bank lowered bid-offer fair value discount to reflect current levels of market liquidity
Norinchukin’s investment securities loss widens to $12bn
Lender is worst-hit by bond price crash among Japanese banks
Barclays frees up £4.5bn RWAs after overissuance clean-up
The bank unwound hedges that safeguarded its buyback of mis-sold US notes
Raising the bar on real-time trade controls with next-gen tech
In an exclusive Risk.net panel session, convened in collaboration with Droit, experts discussed the evolving challenges and opportunities resulting from tighter regulations, and tips for building a future-proof real-time trade control framework
Degree of influence 2022: in the grip of volatility
Rough volatility, liquidity and trade execution were quants’ top priorities this year
Vega decomposition for the LV model: an adjoint differentiation approach
Introducing an algorithm for computing vega sensitivities at all strikes and expiries
Asset allocation with inverse reinforcement learning
Using reinforcement learning to help replicate asset managers' allocation strategy
Podcast: Piterbarg and Antonov on alternatives to neural networks
Two novel approximation techniques can overcome the curse of dimensionality
Howson on steering Cboe past potholes and traffic cops
Head of world’s largest options exchange discusses SEC regulation and SPX appeal
