Brexit, AMA and CCP collapse

The week on Risk.net, July 1–7, 2016

 

BREXIT means problems for clearing houses

AMA models make no sense

CCP resolution causes disputes in EU

 

COMMENTARY: Papers, please

The aftershocks of last month's Brexit vote continued this week. Politically, the UK is in chaos, with both main parties effectively leaderless; and across the financial sector, banks and regulators are trying to salvage enough from the continuing uncertainty to preserve operations, as exchange rates and property funds continue to suffer.

The spotlight this week was on passporting – it is still unclear whether the UK will remain in the EU single market. Some traders are considering moving commodity operations out of London to guard against the risk of losing their valued EU "passport" rights, and the potential upheaval is also leading banks around the world to revisit their booking models, with more planning hubs in Asia.

The initial shock of the news has also led many banks to reassess their business models – interest rate swap rates collapsed, leading to a sudden drought in the structured deposit product market. The drop in sterling led the UK Financial Conduct Authority (FCA) to check prop traders' capital levels and treasurers around the world got an idea of the effects of planned changes in rules affecting the treatment of sovereign bonds for regulatory capital.

But there were signs of hope as well – the FCA confirmed it would stay involved in an EU data aggregation project underpinning implementation of the Markets in Financial Instruments Directive, whatever the eventual outcome of the Brexit debate.

 

STAT OF THE WEEK

The Federal Reserve estimates $100 billion in positions would have to be unwound due to single counterparty credit limits, primarily in the form of bilateral derivatives trades between globally systemically important banks


QUOTE OF THE WEEK

"There could be a doubling of the workload for the cleared derivatives industry in Europe as a result of Brexit because of all these regulations. It is conceivable and indeed likely that over time the UK's position will diverge from Europe and diverge from the US. For companies engaged in cross-border activity, the patchwork of regulation will be more complex." Simon Puleston Jones, head of Europe at the FIA


ALSO THIS WEEK

Negative power prices trouble US electricity firms
Influx of wind and solar sends prices below zero and wreaks havoc on models

Indecent exposure: Fed limits threaten swaps liquidity
Unworkable due diligence rules may prompt G-Sibs to cut single counterparty exposure to less than 5%

Banks told to seize moment to devise new op risk charge
Banks should "get clever and develop their own model" in response to SMA, says UK bank risk manager

Non-cleared market is changing – not dying
Non-cleared swaps market faces challenges, but it is adapting, writes Isda's Scott O'Malia

FSB endorsement missing from new G-Sii methodology
Financial Stability Board has not given seal of approval to designation method, French regulator voted against it

Changing times mean a tougher job for op risk managers
Wave of organisational change at major banks heightens operational risk exposure

Intraday data does not improve daily VAR, research suggests
Bids to use bigger datasets give no better loss forecasts, says hedge fund

The growing pull of public cloud for banks and regulators
Adoption by the FCA for Mifid II data reporting indicates public cloud satisfies regulatory, security and reliability requirements

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