Traders close ranks against FVA critics

Derivatives desks have been passing along funding costs for uncollateralised trades since bank spreads blew out in the crisis. But a funding-dependent price is subjective – and this is intolerable to some quants and risk managers. A heated debate is now generating proposals that could have a radical effect on how the business is run. Laurie Carver reports

Providing funds for derivatives desks was a backwater, pre-crisis. Treasurers were “the boring guys in grey suits no-one wanted to party with”, according to one. But firms could still get caught out if they neglected obligations to their treasury. One senior London-based trader at a US bank recalls being summoned, as a junior associate, to explain to the global head of rates trading why 20% of the annual profit of his multi-million-dollar book had been lost to a funding slippage. “We had