It's not news that the banking industry is being forced to hold more capital and liquidity, or that regulation of the swaps market is being dramatically overhauled – but the effects of those twin reforms became far more visible over the past 12 months. Products and services were repriced, leaving dealers, clients and entire markets on shifting sands. In some cases, businesses became more costly; they are certainly far more complex.
Some of the outcomes were predicted well in advance – for example, that otherwise-identical interest rate swaps cleared at different central counterparties (CCPs) would have different prices, or that the increasing capital burden on bank trading businesses would see non-banks playing a bigger role in more products – but still had the capacity to surprise.
No-one expected it to take a matter of days for the price of 10-year receive-fixed swaps at CME and LCH.Clearnet to diverge by 2 basis points, for example. And few knew quite how dominant high-frequency traders had become in the interdealer market for US Treasuries.
These developments produced some of the year's biggest stories on Risk.net, and others were drawn from a similar pool of topics: derivatives pricing, trading book capital, market structure, and modelling. The list below shows the 10 biggest articles published during 2015, ranked by volume of traffic from all readers.
The year ahead is likely to be just as disorientating. Banks will have to start preparing for new trading book capital rules, margin requirements for non-cleared trades begin to phase in, and mandatory clearing finally arrives in Europe. The implications are clear; the precise outcomes are not.
A trader emailed one of our journalists on May 12: "Have you guys had a look at the CME vs LCH basis market?" At that point, we had not; it became the biggest story of the year.
In an interview, the secretary-general of the Basel Committee revealed regulators were poised to end their 15-year experiment with the modelling of operational risk capital. Final proposals – originally due by year-end – were held up, as Risk.net also reported.
3: Client list reveals HFT dominance on BrokerTec (September 23)
US regulators spent months investigating an unprecedented intraday move in US Treasuries, ultimately pointing to a range of contributing factors, such as the increased market-making role of high-frequency traders. Publishing names and volumes for the first time, Risk.net showed just how dominant these firms have become on the leading interdealer platform.
We added them up: 24 banks had taken a $6.2 billion loss when revaluing their derivatives books to incorporate funding costs and benefits arising from uncollateralised and partly collateralised trades. Some researchers now argue those figures are hugely exaggerated.
Wildly complex, horribly divergent – but the practice of capital valuation adjustment made strides in 2015. In a Risk.net survey later in the year, some experts predicted banks will soon apply the charges to their books voluntarily.
Banks had been warning for months that users of clearing services would have to pay more. Goldman was one of the first to take the plunge.
How painful would the Fundamental review of the trading book be? Deloitte shared some client analysis with Risk.net before regulators had released their impact study results – it showed a sevenfold jump for rates trading desks under the draft standardised approach.
Risk.net has a loyal base of quant readers, but our Cutting Edge technical articles tend not to appear on site-wide most-read lists. This is the exception that proves the rule: Albanese, Andersen and Iabichino explain why the standard approach to funding valuation adjustment is wrong. The authors buttressed their argument later in the year.
9: JP Morgan warns on swaps clearing (February 24)
Lost in the depths of JP Morgan's investor day presentation was a stark warning about the future of the clearing business: "Current market economics are incompatible with capital rules in their current form for many of the leading clearing providers."
10: FRTB: the nightmare before Christmas (November 27)
It didn't arrive for Christmas, in the end, but the final throes of this ambitious three-year project remain nightmarish – with arguments about whether mean or median numbers should be used to gauge impact, the prospect of crude scaling factors during calibration, regulatory infighting and teeming questions about interpretation.