Risk magazine - Oct 2020
Welcome to the October online edition of Risk magazine. Also available to download from the app store.
Articles in this issue
‘Big bang’ sends basis swaps on roller-coaster ride
Secrecy at CME is contributing to volatility ahead of next week’s switch to SOFR discounting
BofA becomes first US bank to adopt SA-CCR
Move cut leverage exposure by $66bn, but other banks wary of trade-offs
DoJ gives green light to Isda protocol
Move clears path for possible late-January announcement on Libor cessation
Bonds and loans clash on Sonia compounding style
Choice of ‘lag’ method for sterling RFR loan conventions bars use of BoE index
Banks aim to close op risk stress test capital gap
Standardising stress drivers could help smooth differences between bank loss estimates
AFM seeks to ‘level playing field’ for venues and vendors
Dutch regulator suggests some liquidity aggregators should be classified as OTFs
Fed will calibrate NSFR to avoid hurting repo
Fed’s supervision head says final liquidity rule will be fast-tracked without fresh consultation
People moves: SocGen’s Saffon Japan-bound, Citi promotes Rafi, and more
Latest job changes across the industry
SOFR discounting: CCPs prepare for make or break auctions
Deluge of one-way risk and kinks in basis swap auctions could derail Libor transition milestone
Covid scenarios, pt II: apocalypse how?
Second crowdsourced scenario exercise reveals polarised views in equities and FX
Hedge funds eye Brexit escape from Mifid reporting
UK tipped to diverge from Europe’s proposed reforms to fund manager rules
Corporate bond markets need more transparency – not less
Regulators should do more to promote pre- and post-trade transparency in corporate bonds
Buy side confronts dealers over unreliable bond prices
Investors are quantifying the quality of indicative prices and banding together to tackle the issue
Bonds go back to the future as electronic volumes grow
Surge in bond ETFs and portfolio trades accompanies investor return to platforms
Dealers vie with Markit to electronify bond issuance
Competing platforms could split the market for new issuance in Europe and the US
Alt data aims to shake up credit scoring business
Young firms, using machine learning methods to scrape consumer info, challenge established agency model
Science friction: some tire of waiting for quantum’s leap
Use cases for new tech are piling up – from CVA to VAR. But so are the obstacles
Hammer time? Clearers mull co-operation on default auctions
Some CCPs are mooting joint auctions to resolve large defaults – but critics deem them unworkable
Autocalamity: can hit product be reinvented?
Spreads on ‘worst-of’ bonds leap 50% as some dealers retreat and others pile on hedges
Will the exit price be right in new Isda docs?
Industry body is updating unloved procedure for valuing terminated swaps
Liquidity test clouds Ibor switch accounting rules
IFRS 9 update will lead to hedge accounting breakdown if new rates markets lack depth
The FX swaps client clearing comeback
Chatter about the service is picking up again, but significant hurdles remain
Imperfect balance? Clearers weigh EU’s CCP resolution tools
Potential levels of loss mutualisation under EU rules are unnerving some clearing members
Q&A: Robert Litterman on the CFTC climate risk report
Chair of industry sub-committee – and famed quant – says carbon dividend plan essential to create right incentives
A bridge too far: EBA swap stay to spur mass repapering?
Industry scrambles to avoid duplicating BRRD close-out contract changes across four jurisdictions
Bank resolvability in the time of Covid
We will balance flexibility and resilience, says director of EU’s Single Resolution Board
Fund managers seek to plug holes in ESG data
Social intel proves elusive as virus reawakens sense of corporate virtue
Quants are key to judicious ESG
Meaningful data analysis critical to future of socially responsible investing, writes Antonia Lim
Don’t blame HFT: plug liquidity gaps for market stability
Dynamic fees could incentivise liquidity when and where it’s most needed, writes quant fund founder Bouchaud
Pandemic exposes design flaws in bank capital buffers
The banking system’s shock-absorbers did not work as intended during the Covid-19 crisis
Number of SOFR swaps traded hits new peak
Over 220 swaps struck for the first time since trading began
EU CCPs expand overseas footprint
Thirteen per cent of EU CCP clearing members are from outside the EU
Tri-party repo trades backed by GSE debt gain popularity
Agency bond trades made up 37% of total tri-party transactions on September 4
Which EU banks hold the most loans subject to Covid relief?
UK lender Lloyds had 13% of its loan book under payment moratoria as of June 30
BNP Paribas again leads eurozone banks on repo exposures
French bank increased exposures 69% over the first six months of the year
US bank systemic risk indicators stay elevated through Q2
Increase in exposures, short-term wholesale funding bump systemic risk scores higher at some firms
Danske quants discover speedier way to crunch XVAs
Differential machine learning produces results “thousands of times faster and with similar accuracy”
Differential machine learning: the shape of things to come
A derivative pricing approximation method using neural networks and AAD speeds up calculations
CCP discounting big bang: convexity adjustment
The collateral transition to SOFR will create convexity adjustments that need to be modelled
NYU’s Epstein on fear and complacency in the age of Covid
Pioneer of agent-based models warns of virus resurgence akin to 1918 Spanish flu
