RSS feedclearing
’Central counterparties are too big to fail
Dressing up a pig as a princess, doesn’t make the pig a princess, and concentrating all the counterparty risk in the financial system into one place, doesn’t make it vanish. It’s still there. For the most part.
MF Global files for bankruptcy
There’s to be no last-minute deal to salvage MF Global: the futures brokerage and sometime European debt specialists filed for bankruptcy on Monday in New York. Click through to access the filing (H/T John Carney):
Clearing vs collateral
Encumbrance — along with collateral-shortage — is one of our favourite post-financial crisis terms.
A new paper from the Bank for International Settlement’s latest Quarterly Review deals with both in relation to central clearing,
A glimpse at failed central counterparties
And dare we say, a glimpse into the future?
Regulators around the world seem set to install central counterparties (CCPs) as part of their efforts at post-financial crisis reform. But not without criticism — some commentators have likened their efforts to creating a series of AIG-type companies,
Which came first – the margin call or the commods mayhem?
Silver prices rose by over 60 per cent between the start of the year and April 25.
They’ve now fallen by over 30 per cent — unwinding some 80 per cent of the upward move in the space of two weeks, according to Société Générale figures.
EU probing CDS market for collusion — full statement [updated]
Friday’s stunning announcement from the EU Commission below:
The European Commission has opened two antitrust investigations concerning the Credit Default Swaps market. CDS are financial instruments meant to protect investors in the event a company or State they have invested in default on their payments.
Portugal and Greece, deserted debt markets
First — a friend of FT Alphaville points out that Portugal’s 10-year bond yields have now breached LCH.Clearnet’s famous ‘margin call’ spread for the first time.
The threshold is 450bps: the spread was 454bps at Wednesday’s close.
The FSA is concerned about ETFs
The UK financial regulator the FSA appears (finally) to be on to the complexity issue that has been affecting the ETF industry for a long while now.
From the FSA’s ‘Retail Conduct Risk Outlook 2011″
Guest post: Why part of the CDS market is stuck in time
Markit credit analyst Lisa Pollack investigates why 2007 is still haunting a number of CDS index products when it comes to off-the-run volumes.
According to ISDA, there were $62,000bn of credit default swaps (CDS) at the end of 2007. What exactly is this number though? First,
Desert(ing) CDS
The world of credit default swaps = one huge, amorphous, indefinable ocean of trillions worth of contracts, right?
How ’bout a dwindling, drying, puddle, instead?
Citi credit analyst Michael Hampden-Turner is worried about short-term climate change,
Backing away from Ireland – epistemically
Deus Ex Machiatto might be talking about bank funding in his latest blog post, but you could well extract his thinking to the sovereign market too:
Just being solvent is not enough. The market withdraws funding long before insolvency,
When Irish margins are biting
The spread between Irish government bonds and German bunds hit another record wide on Wednesday — although what’s really worth noting is the fact it’s now trading wider than 500bps (chart via Bloomberg):
Mi casa es su casa – Spanish clearing and collateral
Has LCH.Clearnet single-handedly saved the Spanish financial system?
Early this month, and as the FT Trading Room reported, the Anglo-French clearing house announced a new service for Spanish government bonds and repos.
Will derivatives reform take us from CCPs to GSEs?
Confused about just how the Dodd-Frank Act would actually change derivatives markets? Happily, Barclays Capital’s Rajiv Setia and team have tried an answer.
Not so happily, the answer is a bit disconcerting.
Hypocrisy du jour, credit default swap edition
I think that derivative products… the CDS on sovereign debt have to be at least very, very regulated, rigorously regulated, limited or banned, this is a personal position on financial instruments
- Christine Lagarde,
A $3,000bn shift in the interest rate swaps market [Corrected]
This is a big one: Fannie Mae and Freddie Mac will start using central counterparty clearing on their massive interest rate swaps portfolio, according to a Reuters report.
It’s worth noting that the combined size of Fannie and Freddie’s interest rate portfolio is $3,000bn – or about than 0.5 per cent per cent of the gross market value of the global interest rate swap market,
Guest post: Prof Craig Pirrong on moves to overhaul to the derivatives market
Lawmakers in DC are due to resume debate on major financial reform legislation currently working its way through the US House of Representatives. One closely-watched aspect of that debate is sweeping overhaul of over-the-counter derivatives markets.
A Basel round-up for bonus-bugged bankers
Flying somewhat under bankers’ radars on Thursday, obfuscated as they are by new bonus taxes, are the maneuverings of the Basel Committee.
The Committee met on Tuesday and Wednesday to discuss a package of potential reforms to the global banking system.
Broker calls for OTC rethink
Plans to force over-the-counter trading of derivatives on to exchanges to reduce counterparty risk need to be rethought by regulators, according to the Asia head of one of the world’s biggest brokers. Pierre Gay,
CME abandons plan to trade OTC derivatives
In a not entirely unexpected move, CME – the world’s biggest futures exchange by volume – and Citadel abandoned their joint effort to set up a trading platform for credit derivatives.
Still, and optimistically, CME said it would continue to push its CDS clearing effort,
NYSE Liffe quits the CDS clearing game
Earlier this week, IntercontinentalExchange bragged that its European clearing unit marked its second week of operations by clearing 699 transactions with a notional value of €31.9bn. The exchange’s US clearing unit,
Guest post: Prof Craig Pirrong on the pricing-clearing link in the derivatives market
Prof Pirrong of the University of Houston tackles the complexities of clearing by central counterparties…
Since the late-90s, I’ve emphasized in my academic writing the importance of accurate price information in making clearing efficient-or even possible. It is therefore encouraging to see this article in the FT make the same point. It is important to note,
Central counterparties and CDS risk, a contrarian argument
Central clearing houses have been hailed by regulators as a potential saviour of the much-maligned market for credit default swaps – but a new research paper suggests this optimism might be misplaced.