Risk magazine - June 2022
In this month’s issue: a brief history of LME’s nickel meltdown, Archegos’s web of lies, why SEC’s prop trading plans threaten liquidity, an in-depth dive into stablecoins, and much more.
Articles in this issue
Nickel debacle weakens UK’s case on clearing supervision
LME episode comes amid scrutiny of UK regime and fresh Brexit row
Credit risk capital models hanging by a thread in the US
Industry insiders expect Fed to drop IRB and IMM when adopting Basel III, but market risk models may survive
LCH plans two-part US Libor swap conversion
CCP to ditch pre-emptive basis splitting in April and May switchover, but retains overlay swaps
US banks anticipate delay to Basel III implementation
New Fed supervision head expected to align schedule with EU and Japan, but time is tight
Banks adopt Python for faster XVA data analysis and pricing
Some banks claim the coding language permits XVA pricing in milliseconds
JP Morgan’s deep hedging reaches cliquets
Euro Stoxx roll-out is live and S&P is next, despite exit of machine learning programme’s figurehead
People: Richardson rises at JPM, Barclays hires Zaimi in Apac
Latest job changes across the industry
Back in time: a brief history of LME’s nickel meltdown
As prices went haywire, margin remained frozen and calls to suspend trading were rejected
How banks got caught in Archegos’s web of lies
Risk managers quizzed and confronted the firm, but lawsuits claim they were “systematically misled”
Standard risk measures low-balled Archegos exposures
When a potential blow-up doesn’t show up, what use are VAR, SA-CCR and stress tests?
The evolution of liquidity risk management
Sponsored content
Prop stop: SEC plan to register prop trading threatens liquidity
Rule change may also be a crypto landgrab by SEC chairman Gensler, critics say
Coded swaps reporting plan delights some, but not all
Cost-busting code for swaps reporting could be tricky if banks lack internal standardisation
Why even the safest stablecoins could fail
Settlement delays, insolvency risks mean collateralised coins could falter
Designed to fail: terra and the limits of arbitrage
Speculative ‘attack’ exposed fundamental flaws in crypto’s algorithmic stabilisation mechanism
What’s up with the docs? Isda aims to set standard for crypto
Industry body looks to standardise digital derivatives documents, but some wonder if it is best placed to do so
How to stop stablecoins from hoarding precious collateral
Repo markets expert and crypto bank chief exec think Fed reserves are the right answer
FTX’s ‘easy-access’ clearing stokes fears over runaway risk
Crypto exchange will auto-liquidate underwater positions, which critics say could fuel a death spiral in prices
Inflation scenarios, pt II: end of the party
Whether inflation rises or falls, crowdsourced scenarios forecast huge range of outcomes
Fortunes of VAR: dealers decry effect of war on risk models
European banks with large Russian derivatives exposures face risk of backtesting exceptions – and higher capital requirements
Platforms bring structured products to the masses
Simon, Luma and Halo fuel 80% rise in volume of structured investments in US
Duck! Buy-side plan to dodge IM rules could backfire
Three-quarters of phase six firms do not expect to exchange margin for at least six months
Pricing data is key to unlocking FX swaps e-trading
Digitec’s Stephan von Massenbach on why automation is needed for e-trading to reach its potential
EU G-Sibs’ score win is political boost, but no panacea
Carve-out of intra-bloc exposures from BCBS score enshrines banking union, but produces little
JP Morgan leads US banks on surging VAR capital charges
Requirements connected to commodity positions jumped 426% in the first quarter
Credit RWAs for EU, UK banks up in Q1 amid IRB clampdown
Reforms to improve comparability of internal models compound declining asset quality
Client margin at CS down $14.6bn since Archegos collapse
Bank’s US clearing units slashed required funds for swaps and F&O since March 2021
Charles Schwab rejigs bond books as it braces for AOCI reintroduction
Dealer might soon lose ability to waive mark-to-market swings from capital
Derivatives exposures take toll on Japan leverage measure
Leverage ratios at Mizuho, SMFG and SMTH hit multi-year lows
Danske, Deutsche and PNC pin SVAR to Covid-19
Most global banks continue to use the global financial crisis to stress-test their portfolios
Reviving the lost art of perturbation for exotic pricing
Natixis quants find novel way to speed up volatility smile modelling
Singular exotic perturbation
A solution based on local volatility and sensitivities is proposed to calculate exotics' prices
Optimal turnover, liquidity and autocorrelation
A novel optimal execution approach via continuous-time stochastic processes is introduced
The future of skew
Forward start volatility swaps and their pricing and hedging models are introduced
From ‘cottage industry’ to quant-ready: prop data at JP Morgan
Unique information now “table stakes” for brokers as they compete for new clients
