Risk magazine - Oct 2022
In this collection: liability hedges hit by early collateral winter; our latest rates scenarios analysis; buy-side traders talking rates; and much more

Articles in this issue
Pension funds foresaw margin meltdown (a decade ago)
Years of warnings went largely unheeded. Questions may now spread to post-crisis clearing and margining project
UK pensions hit with £100m margin calls as gilts and sterling slide
At least three LDI managers request emergency capital as others consider unwinds to avoid default
CVA exposures to UK corporates jump ‘hundreds of millions’
Dash for credit protection triggered a doom loop in the CDSs of cross-currency swap counterparties
BoE intervention whipsaws pension funds that dumped hedges
Unhedged funds saw liabilities rise by up to 20% when rates pulled back
Pension funds brace for end of BoE intervention
Funds boost collateral buffers by as much as 300bp, as October 14 deadline looms
Markets mull UK pension clearing exemption
Treasury expected to extend regulation exempting retirement funds from having to clear OTC trades
UK pensions may struggle to capitalise on fully funded status
Bond yield spike reduced liabilities, but schemes need to sell illiquids at markdown to offload risk
Pensions with other LDI investments quicker to make margin calls
Columbia Threadneedle says funds invested in internal strategies moved collateral immediately, but outside transfers took time
Esma to meet with clearing industry over EU energy crisis
Widening eligible collateral on table; ECB intervention would need government indemnities
Banks face capital hit on broader energy market collateral
Non-standard clearing house margin for energy trades would increase RWAs unless relief granted
Margin costs leap on Simm rejig and rates hikes
Acadia finds roughly one-third jump in exposure following Simm recalibration, with higher funding costs adding to burden
Could a cold collateral winter be coming for pension plans?
UK LDIs passed an early test from rising rates, but margin call pressure is mounting
Interest rate scenarios: skinny-dipping with the Fed
As US rates march upwards, Risk.net readers offer deeply diverging forecasts on the impact for markets through to 2024
It’s amateur hour: how retail traders upended options market
Cutting-edge data shows non-professionals are driven by news events and desire to make a quick buck
Looming slowdown casts doubt on countercyclical capital
Confusion over use of buffers makes bankers wonder if concept will ever be successful
Lag in the SOFR-linked non-linear derivatives market: three barriers to transition
Risk.net explores three themes in SOFR non-linear derivatives discussed by experts in a webinar sponsored by Numerix
Talking Heads 2022: Rates market ruckus
Inaugural interview series looks at how sell-side traders are adapting to a world of surging inflation and rates
How Citi is handling topsy-turvy rates markets
Talking Heads 2022: Rate hikes and inflation have forced a rethink of the US bank’s hedging strategies
Goldman’s rates traders have been crowd-watching
Talking Heads 2022: Steepener unwinds in sterling were “canary in the coalmine”, says rates trading co-head
Barclays confronts ‘implausible’ macro risks
Talking Heads 2022: Bank is reaping rewards of sticking with its trading businesses, says macro head Lublinsky
A child of inflation: BNPP’s new macro trading unit
Talking Heads 2022: Currency and rates traders join forces at French bank as it plans to bring FX algos to US Treasury bonds
StanChart tackles US-China rates divergence
Talking Heads 2022: Policy changes have upended correlations in emerging markets, says rates head Lettich
EBA eyes top-down stress test for credit risk
European version of CCAR is off the table, but more projections are likely to be modelled by regulator
A chilly reception for climate risk capital
Bankers don’t believe climate-adjusted risk-weights will enter EU prudential framework – not for now, at least
Don’t fear the repack: why banks will retain inflation swaps role
Counterparties’ increasing use of direct trades does not spell end of intermediation
Keep risk parity simple, stupid
In times of volatility, simpler risk parity strategies may outperform more elaborate counterparts
CFTC backs banks in tussle over clearing house governance
CME and Ice will need to pay more attention to clearing members on risk committees
Europe’s regulators play ‘time the downturn’ with CCyB
Indicators justify hikes in countercyclical capital buffer, but shock-driven recession looms large
$899m margin breach at FICC’s mortgage unit
Three-day move in TBA prices on June 9 triggered second-highest backtesting deficiency to date
Europe’s countercyclical buffers buck recession trends
Almost half of EBU’s members have set out CCyB hikes; five plan two or more before mid-2023
Client margin at Credit Suisse shrinks to just $25m
Required funds for swaps meet same fate as F&O trades, as exit from prime services continues
Bailed-out Uniper suffered €14bn derivatives markdown in H1
Company cut value of gas forwards contracts due to risk of reduced deliveries from Russia
EU dealers’ IRC charges surge on debt market jitters
Santander and Natixis among hardest hit, with charges up 117% over first six months of the year
European banks set for 17.5% capital hike under Basel III
Output floor could account for almost half the increase in Tier 1 capital requirements by 2028
Data-driven wrong-way risk
A calculation method for regulatory CVA wrong-way risk based on credit and exposure is introduced
Automatic implicit function theorem
New technique can improve use of adjoint algorithmic differentiation in calibration problems
Deep calibration of rough volatility models
Rough vol models are calibrated and fitted to SPX and Vix smiles
Terrance Odean on the $2.8bn catch in zero-commission trading
Berkeley professor’s research on the true cost of retail trading has caught the eye of regulators