Risk magazine - Nov 2018
In this issue: inside secretive e-trading giant Jump Trading; term RFR conundrums; alternative risk premia; machine learning explainability; equity volatility strategies; and much more
Articles in this issue
Lobbing out the Clobs?
As more prop traders go bilateral, what does it say about – and mean for – market liquidity?
CME plans sweeping overhaul of ageing Span model
New margin calculator will bring futures, options and swaps under single framework
EU lawmakers open to delaying ban on critical benchmarks
MEPs propose two-year reprieve for Eonia and Euribor if contractual continuity is at risk
Banks scent margin offset in US SA-CCR proposal
US agencies seek comment on whether IM should be recognised in leverage ratio calculations
EU prop trader regime could capture foreign firms
Group capital rules may be applied to third-country arms of EU market-makers
EU seeks fix for capital double-count
Rules for investment firms would pile capital on capital in apparent error
National supervisors put pressure on global risk models
Varied supervisory and external audit demands stretch cross-border risk management
Institutional ETF trading: Liquidity improving, trade sizes growing
Sponsored survey report: Jane Street
SGX to exit swaps clearing business
Decision will leave some contracts without a CCP from next April
People moves: Piterbarg joins NatWest Markets, Le Brusq leaves Natixis, and more
Latest job changes across the industry
Trading costs versus arrival price – An intuitive and comprehensive methodology
Craig Niven, managing director, cash equity execution at Societe Generale Prime Services explores how a five‑month study allowed the organisation to develop a market impact model using historical data, and why it is key for clients in the long term to…
Jump: inside the secretive e-trading giant
Execs at the Chicago prop firm wish the whole world was a Clob, but as bilateral volumes rise, they’ve decided to go with the flow
Search for term Libor replacement faces twin obstacles
Forward-looking rates based on futures too contrived, but OIS market lacks liquidity
Python – Is the buzz justified?
Python is rapidly becoming the world’s most popular programming language and its versatility and ease of use has enabled it to achieve widespread adoption in finance, becoming the multipurpose tool of choice for quantitative analysts and other financial…
What’s in the box? Bad year reveals alt premia’s gaps
Average fund is down almost 5%, but gap between best and worst performers is 14%
Humans struggle to keep pace with machine learning
Banks and regulators grapple with ‘XAI’ challenge
Machine learning hits explainability barrier
Banks hire AI industry experts in face of growing regulatory scrutiny
Big funds muzzle their AI machines
Fears over interpretability, crowding and overfitting have put a damper on efforts to unleash AI for asset management
European funds wary of stress-test ‘straitjacket’
As Esma finalises guidance, some fear a one-size-fits-all approach
CFTC finds harmony harder than it sounds
James Schwartz and Chrys Carey, of counsels at Morrison & Foerster, explore the impact of a recent Commodity Futures Trading Commission white paper – including how its author’s suggestions would affect cross-jurisdictional application of its regulations …
After Nasdaq, cracks appear in foundation of clearing
Default fund loss triggers debate on risk sharing, auction rules and ‘skin in the game’ at CCPs
China’s caution on compression stretches global banks’ risk limits
Systems lags and lack of capital pressure blamed for apathy on swaps compression
Equity vol strategies get defensive
Floored short funding legs and long vega worked in latest US selloff, dealers claim
Hong Kong stock slump hits CBBC desks
Surging volume and rising leverage expose issuers to gap risk on hedges
Stuck in traffic: EU turf war holds up CCP resolution rules
Unsuitable rules for failed banks could be used to resolve French and German clearing houses
Europe inches closer to own version of no-action relief
Five options on the table, lawmakers want case-by-case veto, firms push for power over primary laws
At BlackRock’s West Coast AI lab
The firm is handing its ‘most vexing problems’ to artificial intelligence
Tenets of investment, upended
Faith in correlations has been sorely tested as markets tear up one long-held maxim after another
Risk evolves in springtime of energy spin-offs
New risk management challenges as firms split legacy fossil-fuel operations from renewable-focused areas
All the news that’s fit to print
While the benefits of the information revolution are clear, the risks it brings should not be underestimated, says Andrew Lo
In EU stress tests, everyone’s a loser
European Union-wide stress tests deserve a 'Could do better'
Deutsche, Barclays breach leverage ratios in EBA stress tests
Five banks fall below 3% regulatory minimum level
Big EU banks lost €22bn capital on IFRS 9 switch
Italian banks saw the largest capital depletion, losing €9 billion (8.9%) of CET1 capital on the transition
HQLA savings may hit $52bn for big three US regionals
US Bancorp could slash HQLAs by $24 billion if ratio is set at 70% for Category IIIs
Rate rises, structural reforms transforming swaps market – BIS
Interest rate derivatives notionals up 13% in first half of 2018, but values collapse 12%
Top 10 CCPs plump liquidity buffers by $20 billion
Increase driven by higher secured deposits at commercial banks and expansion of credit lines
Prudential Financial growth at odds with Sifi repeal
US insurer has increased derivatives and repo books; grown total assets
Op risk data: conduct risk losses top $600 billion since 2010
Swift hack targets State Bank of Mauritius; Capital One, Mashreq, hit by AML fines. Data by ORX News
Credit data: rate hikes put borrowers on the rack
Default risk climbing for heavily indebted companies as US rate hikes continue, says David Carruthers
Swaps data: cleared vs non-cleared margin
Growing margin burden for non-cleared swaps means cleared margin is likely to grow further, argues Amir Khwaja
How replication simplifies pricing of vol exotics
Barclays quants replicate knock-out corridor swaps using barrier options in bid to make pricing easier
Knocking out corridor variance
Amine Ahallal and Olaf Torne add a knock-out barrier to the standard corridor variance swap
Finally, a professional group for model-risk managers
As models of all stripes crowd into finance, the people who screen them form an association
