Risk magazine - Sep 2023
In this collection: Goldman’s Marquee, dirty CSAs, pre-hedging divisions, and much more.
Cover art
Kirath Ghundoo, Aurous IV, 50 X 70CM, Acrylic, Oil sticks, Gold Leaf on Paper
Contact: Anne-Marie Bainbridge, www.anne-mariebainbridge.co.uk
Articles in this issue
Shhh, don’t tell: the struggle to keep skew under wraps
Liquidity recycling by clients has made it more difficult for banks to keep skews quiet
Banks slam zombie floors in Basel endgame proposal
US regulators double down on capital floors despite clampdown on internal models
Rising costs prompt US borrowers to embrace compounded SOFR
Sophisticated firms with term SOFR loans increasingly willing to run basis risk to cut hedging costs
Pension funds weigh corporate bonds as margin for gilt repo
Stung by disastrous losses during last year’s LDI squeeze, funds consider greater range of collateral on gilt repo
Banks call for direct oversight of cloud providers by US regulators
Tri-opoly of cloud vendors “poses systemic risk” to financial sector, say risk managers
LCH Ltd’s RepoClear margin model gets a makeover
Changes aim to make margin models for gilt repo more sensitive to market moves
BoE model risk rule may drive real-time monitoring of AI
New rule requires banks to rerun performance tests on models that recalibrate dynamically
Goldman’s Marquee is a gradual revelation
Multiple apps are being corralled into a sticky cross-asset ecosystem, updated with Python and cloud
Like your CSA dirty? It’ll cost more
Buy-side firms have to pay up if they want to post corporate bonds to their dealers, but prices vary
We need to talk about pre-hedging
Dealers claim it’s a vital tool for managing risk. Clients say it’s open to abuse. How should regulators treat the problem child of financial markets?
The strange effect of US clampdown on FRTB models
Ban on internal models for trading book default risk could provide some banks with unexpected capital relief
Fed throws curveball with agency clearing surcharge proposal
Revived plan could see capital for G-Sibs’ client clearing jump 40 times, says industry body
US banks rue missed opportunity to reform G-Sib surcharge
As method 2 drifts away from Basel, critics fear comparability and competitiveness will suffer
CSRs fight for survival after ‘damning’ Iosco verdict
Standard-setter accused of ignoring its own principles and failing to back up its conclusions
Building out Eurex’s home of the euro yield curve ambition
Market participants are at the centre of a plan by Eurex to build an alternative liquidity pool for short-term interest rate derivatives in Europe
Overboard: ditching clients imperils Treasuries clearing mandate
Standardised docs a drop in the ocean as dealers eye potential costs of sponsored Treasuries clearing
Shall we compare thee to a multilateral trading venue?
As regulators confirm that perimeter guidance applies to tech firms, the focus shifts to enforcement
LME case could redefine exchange powers to cancel trades
European trading venues have broad discretion when responding to market emergencies
Creaky credit sparks ‘high’ dispersion in CLO pricing
Investors are becoming more particular when it comes to tranches and managers
New hope for crypto derivatives as markets urged to hail CESR
Ethereum staking index could allow swap curve and structured products to develop
Beyond Libor: the impact of SOFR on rates, bonds and loans
Dmitry Pugachevsky, director of research at Quantifi, explores how the transition from Libor to the SOFR impacts rates, bonds and loans, alongside some of the challenges that are due to arise
Plugging the leaks in skewed pricing
Liquidity recycling has made it trickier for LPs to identify information leakage
Fleeting volatility vexes trend followers
Jumpy markets give quant firms the jitters as tried-and-tested strategies struggle in 2023
Diversification is even better than a free lunch – study
Data back to 1926 shows that spreading bets brings higher returns as well as lower risk
Harnessing the power of data to optimise intraday liquidity management
Aaron Ayusa, director of client success at Baton Systems, explains the benefit of using data derived from real-time reconciliations to optimise intraday liquidity management
Nine US banks could be caught by Fed’s revised market risk rule
Expansion of trading risk charges to banks above $100bn in assets would also affect firms with minimal trading activity
Goldman most threatened by Fed’s rejig of modelled capital charges
End of credit risk modelling and scaling up of SCB’s role could tip six US banks below minimum requirements
Schwab turns to costly FHLB advances as deposits drop
Bank draws $45.6 billion in facilities carrying four times the interest rate paid on deposits
Eight US banks slapped with higher capital buffers
US units of Deutsche and UBS hit with highest SCBs yet imposed by the Fed
JPM’s new EU arm is bloc’s 4th largest derivatives bank
Frankfurt-based dealer eclipsed homegrown G-Sibs in 2022 on several indicators
Skew this: taking the computational burden off basket options
Dan Pirjol presents a snap formula for estimating implied volatility skew in an instant
Smile-consistent basket skew
An analytic approximation for the implied volatility surface of basket options is introduced
A robust stochastic volatility model for interest rates
A swaption pricing model based on a single-factor Cheyette model is shown to fit accurately
Man on a mission: Axel van Nederveen, swaps evangelist
EBRD treasurer spreads the good word about local currency derivatives markets
