Financial statements and the death of Osama

Or, why Baudrillard can teach us more about accounting than Descartes The Epicurean Dealmaker confuses us thus: accounting is … an epiphenomenon to the actual day-to-day activities which any business conducts. It is a way to keep track of the financial outcomes of a firm’s true activity, which is conducting business. Why this isn’t false, […]

With a leap they were gone

Futurisation is the current buzz word in the swaps market. I’ll let Bloomberg explain: On Friday, Oct. 15, a rule designed to improve [US] government oversight of the multitrillion-dollar market for derivatives took effect. The following Monday, many energy traders moved their swaps business to a futures exchange. After the U.S. Commodity Futures Trading Commission […]

Collateral = risk capacity

US GC repo is going lower, because, well, the Treasury has most of the assets, thanks to QE. Given that these assets are needed for collateralised funding and collateralised risk taking, that is having an impact. Izzy at Alphaville relays the following, very much along the line we have taken on this: overly strict collateral […]

When is it better not to plan?

The FT reports that BofA is moving the old Merrill international derivatives business back to London. Long time followers of this story will remember that this used to be booked in London, then was moved to Dublin as a tax arb. The London vehicle then lost more money than you can shake a stick at […]

Coming to good bookshops near you soon

My new book, OTC Derivatives: Bilateral Trading & Central Clearing will be delivered to the publisher this week. These roughly 300 pages of goodness should be out in the summer. Just to whet your appetites, here’s the table of contents. Introduction Chapter 1 – Over-The-Counter Derivatives 1.1 OTC Derivatives: Trading And Its Consequences 1.2 The […]

Preventing Regulatory Capture

The Tobin project’s new book on Preventing Regulatory Capture can be found here. The title is a little ambitious – there is more analysis of the phenomenon of regulatory capture than discussion of its prevention in the book – but many of the chapters are worth reading. I recommend in particular William Novak’s History of […]

A very rare sighting

Brace yourself, gentle reader: democratic accountability for financial regulation may be coming our way. From Reuters: The European Parliament may demand a rethink [of EMIR]… Members of the Parliament are discussing a resolution which, if approved next month, would trigger a formal review of the rules, two sources from the European Parliament said… The issue […]

The coming of the light

A big project is about to emerge blinking into the light of day. I will have more for you good folks next week but meanwhile, here is the customary DEM space filler.

My new favourite website

It was cakewrecks.com, but thanks to Lisa at FT Alphaville there is a new winner: the European Spreadsheet Risks Interest Group horror stories page. How can you resist a site with items like this: MI5 wrongly collected subscriber data on 134 telephone numbers as a result of a software error, according to interception of communications […]

Whale watching, the official tour

How large sea creatures should avoid trying to optimize their capital requirements The official account of the JPMorgan Whale losses is pretty much in line with the guesses outlined on DEM and FT Alphaville. First, regulatory capital optimization under the post-crisis rules was a critical motivation: Two of the recent Basel Accords, commonly referred to […]

Not with a shout but with a lump

The recent New York Times article on the Basel Committee might prompt one to think that a rapid end to this most international of collaborations is in prospect — or at least that a prominent country or two might leave the big Basel tent. I suggest the matter is more subtle. First, in all but […]

A typically considered, serious DEM link

The Jack Lew signature generator.

What is quad party seg?

You may have heard the term `quad party’ or `fourth party’ custodian bandied around recently if you have been following the clearing discussions closely. The idea is as follows: In client clearing, you have 3 parties already: the client, the clearing member, and the CCP. The Custodian is the fourth party. Rather than the client […]

‘Maintaining Confidence’ paper is up

My paper Maintaining Confidence – Understanding and preventing a major financial institution failure mode has been published as an LSE Financial Markets Group special paper, and is available here. From the abstract: This paper proposes the solvency/liquidity spiral as an failure mode affecting large financial institutions in the recent crisis. The essential features of this […]

Homeopathic regulation

The new revisions to the Basel III LCR do not, of course, water it down to homeopathic quantities, but I love the phrase so much I wanted to use it nonetheless. Basel proposes: the definition of high quality liquid assets (HQLA) has been expanded to include lower-rated corporate bonds (A+ to BBB-); certain equities with […]

Being open about supervisory aims

Before Christmas, I had a fascinating exchange of comments with long-time and insightful reader Quality Mullet. It began with my observation It seems to me that the great debate we are not having is what we want the system to look like. If supervisors said `here is what we want, broadly’, then everyone could critique […]

Too much to say today

Like the pent-up demand released in yesterday’s equity rally, there has clearly been a lot of good writing going on over the holidays that is coming out. There is too much to comment on in detail today, so here are some highlights: Lisa Pollack in FT Alphaville on reconciling between US GAAP and IFRS presentations […]

Valuing non-traded derivatives

There has been further kerfuffle over Deutsche’s handling of gap options in leveraged supersenior trades. For instance, the FT reports the remarks of a couple of accounting professors. Charles Mulford says “I believe that the gap risk should have been adjusted to market value – consistent with the views of the former employees,” adding: “One […]

Happy New Year

May all your sunrises be good ones.