Posts tagged 'CCP'

Ring around the clearer, acts like a mirror. Default! default! They all fall down

Lisa joined FT Alphaville in September 2011 after a tour of duty through the guts of the financial industry, having worked as an analyst at a bank and for a financial data company.

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| May 03 08:47 | Comment |

“What happens when one bank defaults across six CCPs? The remaining members will have to pick up the bill. Given that they are almost certainly members of the other CCPs, this will result in a default contribution bill so large it could potentially lead to their failure also.”

That’s Gary Dunn, senior manager for regulatory and risk analytics at HSBC, being quoted by Risk at Isda’s AGM last week. Given the increasing concentration of risk in central counterparties, he thinks that they would ultimately have to be bailed out by taxpayers, after the CCP’s buffers were exhausted. Read more

Pass the margin on the left hand side

| Apr 13 2012 11:19 | Comment |

If you read some of the regulations written recently, you may be forgiven for thinking that central clearing is the solution to all the risks in the over-the-counter (OTC) derivatives market. Some rules mandate clearing for certain market participants and trades, while others impose higher capital requirements for staying outside of the system. There is, of course, an implicit assumption in all of this that central clearing is an unequivocally good thing.

If only it were that easy. In fact, there are lots of issues with OTC derivatives clearing. Today, we’ll just look at one aspect: that of margin. Read more

A modern defenestration

Joseph joined FT Alphaville way back in March 2010. He likes all the politically and legally fiddly bits of finance. He also likes credit, rates, global macro, tail risk, and all that stuff. (You should email him story ideas. He’ll take anything.)

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| Apr 10 2012 18:17 | Comment |

We can’t ignore the (extraordinary) latest on the fall of Bo Xilai. Probably nobody who follows China as a market can, we suppose.

The Xinhua story on the arrest of Bo’s wife speaks for itself… Read more

Counterparty musical chairs

Lisa joined FT Alphaville in September 2011 after a tour of duty through the guts of the financial industry, having worked as an analyst at a bank and for a financial data company.

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| Oct 24 2011 12:10 | Comment |

If left standing when the music stops, you may still be trying to get your assets back years later.

While a deterioration in a bank’s creditworthiness may lead to a rather pleasurable accounting profit, it can have a negative impact too. As IFR’s Christopher Whittall and Helene Durand point out, clients don’t like it so much that their prime broker’s credit spreads are widening out and some have been reacting by shifting their trades elsewhere. Read more

What’s prudent in collateral portability

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

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| Jul 22 2011 09:12 | Comment |

Did you notice this bit from the reams of CRD IV material released on Wednesday?

Where an institution acting as a clearing member enters into a contractual arrangement with a client of another clearing member in order to ensure that client the portability of assets and positions referred to in point (b) of paragraph 5, that institution may attribute an exposure value of zero to the contingent obligation that is created due to that contractual arrangement. Read more

Now you see it now you don’t – collateral transformation

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

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| Jul 04 2011 13:35 | Comment |

It’s an answer — of sorts — to the $2,200bn dollar question. Read more

Clearing vs collateral

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

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| Jun 06 2011 10:40 | Comment |

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, scheduled to cover all OTC derivatives by the end of next year. Read more

A glimpse at failed central counterparties

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

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| Jun 02 2011 14:14 | Comment |

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, or Too Big to Fail institutions, acting as insurers. Read more

Which came first – the margin call or the commods mayhem?

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

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| May 12 2011 08:50 | Comment |

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. Such violent swings have lead to margin call hikes on the precious metal (along with other commodities) at the Chicago Mercantile Exchange, and have also unleashed a wave of debate about just how much margin moves may have attributed to price falls. Read more

CDS options market multiplies alongside questions

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

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| Mar 28 2011 12:47 | Comment |

What’s over-the-counter, a derivative, and expands despite financial crises?

The CDS index options market. Read more

Basel takes aim at the negative basis

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

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| Oct 04 2010 10:55 | Comment |

Basel is busy bolting stable doors.

Indeed, one of the big drivers behind new Basel III counterparty risk capital requirements is the infamous negative basis trade. Read more

A gazillion more CDS trades

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

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| Sep 02 2010 09:45 | Comment |

All hail the Depository Trust and Clearing Corporation

The DTCC has provided an updated and more in depth version of its market “snapshot” of CDS trade — six-month data for the top 1,000 CDS single-named reference entities. It’s aimed at “informing” market participants and regulators which names might have sufficient liquidity to be cleared through a central counterparty. Read more

Derivatives reform: now what?

Cardiff writes mostly about US macroeconomic issues, with daily excursions into other topics about which he claim no expertise. Before Alphaville, Cardiff spent a little more than two years as a reporter at Dow Jones Financial News covering investment banking, asset management, and private equity. Along the way he has written freelance pieces on a variety of other topics from behavioural psychology to Muay Thai, the latter also being a personal interest that involves frequently getting kicked in the shins (and torso, and head).

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| Aug 12 2010 16:55 | Comment |

You may have heard that the signing of financial reform in the US wasn’t just the end of a long and difficult process but also the beginning of another, with a host of federal agencies given discretion to study and define the rules for the areas they oversee.

Thursday’s FT includes a comprehensive article looking at the unresolved issues for derivatives, and we think it’s worth highlighting a few of its main points. Read more

Uncertainty at the (CDS) margin

Joseph joined FT Alphaville way back in March 2010. He likes all the politically and legally fiddly bits of finance. He also likes credit, rates, global macro, tail risk, and all that stuff. (You should email him story ideas. He’ll take anything.)

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| Aug 11 2010 16:30 | Comment |

Newsflash! Agency specialising in credit ratings says credit derivatives might not factor in fundamentals properly. Compared to… err, credit ratings, perhaps.

But Fitch Ratings did have some intriguing points to make about CDS margins on Wednesday. Read more

A $3,000bn shift in the interest rate swaps market [Corrected]

| Mar 12 2010 16:21 | Comment |

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, according to BIS data as at June 2009. Read more