Risk magazine - Jul 2019
In this issue: Machine learning’s risk modelling disruption; Libor fallbacks; Basel’s Coen in conversation; policing the cloud; and much more
Articles in this issue
Can robots learn to manage risk?
Will machine learning transform risk management or give birth to a new breed of model risk? Probably both
Japan’s megabanks begin pricing in CVA
Local firms align with foreign dealers to include counterparty credit risk in corporate swap quotes
Citi culls HFTs from FXPB client list
HC Technologies, Jump Trading and Virtu Financial among those told to find a new prime broker
Search engine study shows limits of alternative data
Google Trends adds nothing to volatility predictions, researchers find
UBS introduces smart contracts for structured products
Swiss bank aims to tackle shrinking margins by automating workflows and cutting trade processing costs
First bond switch from Libor to Sonia gets go-ahead
Landmark move sees Associated British Ports become first to amend legacy bond reference rate
Hong Kong seeks European equivalence for Hibor and Honia
For the territory’s crucial renminbi fixings, however, no path to approval has yet been decided
Ice, CME set to launch new VAR models in early 2020
Bourses plan to switch margining of energy futures at different times, prompting speculation of “arbitrage opportunities”
People moves: CRO role for SG’s Ricke, Barclays continues hiring spree, new SwapClear head, and more
Latest job changes across the industry
How AI could tear up risk modelling canon
BlackRock, MSCI, LFIS among firms looking to replace traditional, linear risk models
Ahead of the curve: how traders profited from Libor fallbacks
Market second-guesses spread for new risk-free rate, spicing up Libor-Sonia basis market
Warrants issuers battle algo predators in Hong Kong
Threat of high-frequency traders forces banks to spend big on tech
Q&A: ‘Stop talking about rules’ – Basel’s Coen
Standard-setter’s top staffer is moving on. He wants industry to do the same
Drax, Brevan and the rise of the agency broker
JB Drax has become a key broker for at least 15 buy-side firms, including Brevan Howard. But what is driving the success of the secretive agency broker and its peers?
Fixing the roof while the sun – wait, is that rain?
The Fed is split on whether to apply a countercyclical buffer. But so is everyone else
Double jeopardy: CCAR and the countercyclical buffer
Some US regulators want to hike capital while times are good; banks say Fed’s stress test already does
US parries EU jab on CCP oversight
CFTC’s Pan questions Esma’s “very complex” test; EC’s Pearson calls it “more intelligent” than US’s
Financial firms toil to meet new EU rules on outsourcing
Negotiating right to audit vendors, including cloud providers, seen as toughest requirement
Lessons from a decade of top 10 op risks
Constants and changes in Risk.net’s annual rankings spotlight common gaps in op risk management
Libor reform threatens hedge accounting for loans
Changes to loan terms may nullify contracts and create balance sheet volatility
Evolution or extinction: Ice swap rate’s post-Libor quandary
Thin liquidity in SOFR swaps imperils reference rate for $40 trillion swaptions market
Resented elsewhere, Mifid finds love at Esma
Huge cache of data helped Esma spot market abuse and inform policy, head of market data policy says
The Fed doesn’t like narrow banks, but asset managers do
Narrow banks would funnel cash to the Fed to get its rate – money managers are intrigued
Basel’s unlikely victim: venture capital
Changes to credit risk framework could block alternative path for EU banks to finance SMEs
Aspect Capital’s just-in-time metamorphosis
Martin Lueck on the trend follower’s launch of new strategies that cushioned last year’s blows
Exchange leaders see a greening future in derivatives
On ESG, Europe leads the US, new products are sprouting and sourcing of metals is being examined
The BoE leverage ratio: welcome relief or regulatory arbitrage?
UK banks are reaping higher capital savings through the BoE's leverage measure
Savings vary for UK banks under BoE leverage ratio
RBS deducted £80 billion of leverage exposure under UK-specific rule at end-March
SME loans more capital intensive for big eurozone banks
Corporate loans to smaller enterprises attract high risk weightings
Some EU funds leveraged more than 500% using CDS
1,337 funds held €387 billion of CDS notionals at end-2016
Insurers’ CLO exposures are small, but growing
US insurer holdings hit $122 billion in Q4 2018
Quadruple witching triggers $1.5bn VM call at CME Clearing
Peak VM call was 56% bigger than the one in Q4 2018
At Ice Clear US, largest margin breach on record
The clearing house last reported a margin shortfall in Q2 2017
Op risk data: forex rigging fines bloat bank losses
Citi, RBS, JP hit for total €800m in penalties; plus Aussie bank misconduct probe. Data by ORX News
Credit data: China, US corporates feeling trade tensions
Dispute has ended a steady improvement in corporate credit risk
No forward-looking rates? No problem
A commonly used quant model could be the answer to the replacement of forward-looking Libor
Libor replacement: a modelling framework for in-arrears term rates
Andrei Lyashenko and Fabio Mercurio expand rates modelling to the post-Libor world
CVA wrong-way risk: calibration using a quanto CDS basis
Tsz-Kin Chung and Jon Gregory calibrate wrong-way risk with the help of quanto CDS values
Ex-Huawei tech security chief on steeling UOB’s cyber defences
Singaporean bank overhauls penetration testing and scenario analysis, with Tobias Gondrom leading the effort