Risk magazine - Mar 2020
In this issue: the UK’s long road to equivalence; Morgan Stanley’s butterflies; the black box of AI, opened; and much more
Articles in this issue
Why bankers should embrace the Brexit political theatre
Treating equivalence as purely technical might not have the outcome that financial firms want
Cross-border trading could suffer under IM rules
Conflicting US and EU cash reinvestment rules may force buy side to post bonds
Ion’s Broadway deal leaves banks in a bind
Barclays and Nomura among banks that had moved from Ion to rival it now controls
Goldman, JPM kick off SOFR swaptions
US dealers spearhead non-linear trading but patchy liquidity weighs on vol market ambitions
First SOFR versus CORRA cross-currency swap hits market
JP Morgan and National Bank of Canada extend SOFR cross-currency trading into Canadian market
Chinese banks set for mass loan repricing
Options launch slated for February to help industry switch to new benchmark by August
BoE to publish ‘golden source’ compounded Sonia index in July
UK to align with US in effort eliminate interest calculation mismatches and turbo-charge adoption
Dealers prefer repo for new risk-free rate in Korea
Unsecured rate undercut by dwindling transactions in local call market
EU banks rue SA-CCR mismatch with US
European clearers are stuck with CEM until 2021, but some US banks are reluctant to switch early
Singapore banks tighten ML governance amid regulatory scrutiny
DBS, StanChart and Deutsche build model inventories and draw up standards around use cases
FX options see record volumes as yen goes off-script
Coronavirus outbreak and recession fears trigger frenzied trading in USD/JPY options
People moves: Morgan Stanley names FX co-heads, Dray expands BNPP role, Singh switches post at Bank of America, and more
Latest job changes across the industry
The UK’s path to EU equivalence: détente or detour?
Race to meet post-Brexit cross-border trading requirements will go down to the wire
Morgan Stanley FX loss leaves ill-feeling, questions in wake
Options traders saw odd quotes by US bank months before losses were publicised
Prising open the black box of AI
Shapley values, Lime and other tools can help decipher machine learning’s output. It’s a start…
Top 10 operational risks for 2020
The biggest op risks for 2020, as chosen by industry practitioners
Adapting to technological change in op risk management
Baker McKenzie‘s Jonathan Peddie explains how the role of operational risk manager has evolved in recent years, how financial firms are managing increasing demand for data privacy and transparency, and how technological advancements over the coming…
A growing focus on op risk
Operational risk and resilience have taken centre stage over the past year. While op risk concerns all systems and controls that deliver effective solutions against the risks financial services businesses regularly face, Jonathan Peddie, partner at Baker…
Clearing members in cash clash with Apac CCPs
Banks and clearing houses wrangle over who should pay for losses on invested collateral
Margin exchange threshold relief: get out of jail free?
‘Game-changing’ IM exchange threshold relief may not be the phase five free pass it first appears
Synthetic Libor faces legal obstacles
EU benchmark rules may thwart ‘tough legacy’ fix, reviving calls for blanket legislation
Who killed FX volatility?
Beyond central bank policy, traders see a range of hidden structural factors at work
Splits emerge over EBA’s stress test 2.0
Experts question utility of separate bank leg that won’t feed into capital requirements
Fund securitisation makes capital vanish – and watchdog growl
Probe into possible “abuses” of CFO structure could hit wider investments, experts say
False start for foreign banks under Fed’s tailoring rule
Delayed reporting form means requirements for Barclays and Credit Suisse could change twice in 2020
The age of ethical investing, but can quants cope?
Systematic managers grapple with ESG demands of clients
Fuzzy data stalls ESG alpha hunt
Quants searching for ESG signals have reached very different conclusions. Mostly they blame the data
How diversifying too far weakened alt risk premia’s rebound
Strategies that hurt ARP funds in 2018 did better but some cancelled out last year
All aboard for LNG freight derivatives?
Tools to manage LNG freight risk were developed last year, but how is the market responding?
The open data revolution in banking falls short
Lax Pillar 3 rules are leading to inconsistent data being collected
Dollar OIS volumes hit $3.3trn high
Short-dated swaps dominated trading in last week of February
VAR models at odds on forex, commodities, credit risks – EBA
Interquartile distribution of VAR outputs highest for small banks, watchdog finds
Rates trading revenues up 154% at top US banks
Net gains on interest rates-related exposures top $21 billion
Systemic US banks shed $70bn of repo exposure in Q4
Goldman Sachs lowered repo exposures 13% quarter-on-quarter
‘Fallen angels’ pose little threat to EU funds
Passive fund outflows in a credit crisis would put pressure on high-yield bond prices
Goldman hits the Collins floor
Changes to loss-given-default models caused advanced approaches credit RWAs to plummet
Op risk data: Citi fined $18m for failing to buy flood insurance
Also: VTB takes $535m hit from Mozambique loan fraud; Citadel Securities fined in China. Data by ORX News
Credit data: rising tide lifts fund houses – but can it last?
Strong revenue growth masks structural problems in the funds industry
Swaps data: cleared volumes drop for all markets – except FX
Smaller CCPs make market share gains in a quarter of double-digit declines for rates and credit
Outsmarting counterparty risk with smart contracts
A digital transaction system developed by quants at DZ Bank could slash margin costs for derivatives
Smart derivative contracts: detaching transactions from counterparty credit risk
Introducing deterministic termination rules to eliminate counterparty risk in smart derivatives
Quantifying systemic risk using Bayesian networks
Creditworthiness of individual entities may offer an insight into systemic risk of financial markets
‘Quantamental’ approach convinces Morgan Creek CEO
Proponent of big-picture investing sees growing role for machines, but with caveats
