Risk magazine - July 2022
In this month’s issue: a Basel III juggling act; the rise of geopolitical risk; the war on terra; and much more.
Cover art: Robert Bennett, Untitled, Acrylic on canvas.
Contact: rjbarts88@gmail.com
Articles in this issue
Rates correlations break down amid volatility surge
Dealers say go-to hedges are now too risky as old relationships fail
Pimco loses $400m on failed Russia CDS bets
Revised markdowns suggest bond giant has already crystallised losses on sold credit default swaps
Calls grow to ease restrictions on term SOFR derivatives
Ban on interdealer trading is raising costs for end-users transitioning from Libor, banks say
BoE: regulators could push CCPs to publish margin shocks
Russia-Ukraine war has forced a tenfold margin funding burden, says BNP; Ice says smaller hedgers face disenfranchisement
Buy side looks to cash in on euro swap pricing anomaly
Fixed rates on long-dated €STR swaps now above their Euribor equivalents
CDS market mulls settlement options for Russia contracts
Tightened US sanctions threaten CDS default auction, leaving users a choice of imperfect alternatives
Libor/SOFR basis like ‘free money’ for early movers – GS trader
Sharp narrowing of basis swaps below fallback spreads has failed to open transition floodgates
Ex-Deutsche CRO: banks face hundreds of billions in climate fines
Banks risk becoming a “whipping dog” in the fight against climate change, says departing risk chief
Optiver overtakes SocGen and SIG in European ETF trading
Dutch market-maker moves into top three by carving out a niche in equity products
People moves: JPM’s quant shuffle, NatWest hires Solanki, and more
Latest job changes across the industry
How will US regulators perform the Basel III balancing act?
Largest banks seek offsets for higher capital requirements caused by possible end of IRB, IMM
Fog of war: the struggle to manage geopolitical risk
Financial firms ponder how to factor the Ukraine conflict and wider global unrest into stress-testing
EU crypto rules would allow terra, just not as a stablecoin
Final laws set to prevent algorithmic coins from styling themselves as “stable”, says insider
The stETH slide and what it means for crypto liquidity
Q&A: Automated market-making may have contributed to depegging, says a crypto fund manager
Thriving in the new resilience normal
While the Covid-19 pandemic may be largely behind us, new challenges emerge as firms renavigate and optimise operations in the ‘new normal’. Today the focus has shifted to making operational resilience scalable and sustainable. In a Risk.net panel…
Commodities threaten pain for initial margins
Market volatility and spot-based Simm approach may drive large margin spikes in little-tested asset class
Mutual funds struggle to value Russian bonds
Filings show just how challenging pricing securities has been during crisis
Brexit bogeyman haunts EU’s Mifir transparency push
Bloc considers copying darker side of UK's divergence from its 2018 rules
Correlation ‘is not causation’ for rates and value stocks
Some quants remain unconvinced by the ‘great rotation’ away from growth
Cross-currency’s €STR switch may hasten Euribor demise
Rising cost of issuer cross-currency hedges could spur greater adoption of euro risk-free rate
Rethinking risk and operational resilience post‑Covid‑19
In a Risk.net panel session, convened in collaboration with Fusion Risk Management, experts discussed five themes on re-evaluating existing operational resilience strategies
‘Corrective’ algo tells quant firm when it’s wrong
QTS has built a machine to show whether a strategy is likely to succeed or flop
Federated’s CIO on the fight to save prime MMFs
SEC reform proposal could be final nail in coffin for institutional prime funds
SwapClear incurs record number of margin breaches
LCH’s interest rate derivatives clearing service reported over 4,000 backtesting exceptions in Q1
Euro, Swiss swaps trading jump on rate hike chatter
Highest weekly volumes since at least 2020 as ECB and SNB gear up for policy change
Interest rate swaps help BMO keep M&A deal on track
Hedges to safeguard the Bank of the West acquisition have already yielded $2.7bn in mark-to-market gains
Norinchukin’s capital dented by crashing bond prices
The bank lost three percentage points of CET1 ratio in Q1 as contribution from AOCI halved
Client margin at Wedbush unit up 46% in April
Futures and options clearing unit saw largest monthly increase across all FCMs
Eurex’s fixed income and IRS units hit by almost 700 breaches
Peak breaches in Q1 were €706 million and €214 million in size, respectively
A new way to calculate conditional expectations
Gaussian distributions can sharpen one of the most commonly used tools in quant finance
Swap rate: cash-settled swaptions in the fallback
A fallback pricing method that reduces vanilla swaptions’ complexity is introduced
Semi-analytic conditional expectations
A data-driven approach to computing expectations for the pricing and hedging of exotics
