Wise words for managers

From Michael Mauboussin: The main point is to think critically about the activity you’re participating in and consider how much luck contributes to the outcome. In some realms it’s negligible, such as a running race. But in others, it’s huge. Once you understand luck’s role, you can understand how to approach the activity more thoughtfully, […]

Political leadership

In the wake of Cameron’s historic defeat (which of course is mostly Tony Blair’s fault), Chris Dillow makes a good point: he considers Lyndon Johnson’s political success* and says that it rested on not so much on them taking the moral high ground – the best that can be said for LBJ’s “moral compass” is […]

Phrase of the day

gathered in all their wonky majesty from Robin Harding writing in the FT about Jackson Hole.

Getting out of three trillion

What do you do if, in round terms, your balance sheet is three trillion dollars bigger than you want it to be? (Or two. Whatever.) Get into the reverse repo market in a big way, of course. Which is exactly what the FED is doing, as the WSJ spotted: In the July minutes of the […]

Mist, not rain

I didn’t get wet, but we did get some beautiful mist.

Happy meals

For the name alone, I have to reblog a post from Matt Levine about CBs. You see, the majority of CBs are bought by arb funds, and to arb the CB, the fund needs to short the stock. For stock that is hard to borrow, that’s a problem. So the issuer facilitates the short, and […]

I’m travelling without a raincoat…

…and a storm is coming. Posting will likely be light for the rest of the week, especially if I get soaked.

Estimating the riskiness of OTC derivatives CCPs

There’s a post on the CDO pricing methodology for estimating OTC derivatives CCP riskiness over on the RegTech blog here. Regular DEM readers won’t find anything new – we just outline how to think of a CCP as a CDO, with collateral assets the derivatives receivables and tranches corresponding to the various amounts in the […]

CDS futures?

Seth Berlin has a useful summary of the potential advantages and disadvantages of CDS futures over at the OTC space. I particularly like his characterisation of a tipping point which, if reached, could result in an avalanche of liquidity – or if not reached, would result in the futures sliding into irrelevance. We’ll see.

Unreliable journalism in commenting on derivatives valuation

Peter Eavis has a Dealbook post which, sadly, reiterates many of the common misunderstandings about derivatives valuation. Let’s start from first principles, and try to understand what is really going on here. Why are we trying to fair value a derivatives book? First, to create a reliable P/L which accurately reflects the value attributable to […]


The Streetwise Professor, reviewing Haim Bodek’s The Problem of HFT, makes an important point about true central limit order book markets (CLOB markets) vs. those where a poor simulacrum of a central limit order book (SLOB) is created via market linkages: I call what the SEC wrought a “simulacrum” order book because although it incorporates […]

Not yelling fire

Bloomberg has a story which might be considered alarmist on a new CPSS-IOSCO consultative report (so not policy) which considers the usefulness of IM haircutting as a CCP loss mitigation tool. It’s worth quoting the full paragraph for context: Initial margin is likely to constitute a very large pool of assets which would, if it […]

How mutual should a CCP be?

The RegTechFS blog has a post of mine highlighting one of the questions Edwin and I ask in chapter 9 of the book: how mutual should a CCP’s default waterfall be? There isn’t a right answer here, but a range of possible solutions, some of which might be explored in ‘second generation’ CCPs. (CCP, the […]

The book is out

I can finally confirm that the book has appeared. OTC Derivatives, Bilateral Trading and Central Clearing was published yesterday, and I have a copy in my hands. The Amazon.co.uk link is here. Amazon.com say that US publication is 4th September, so I am guessing that the books are chugging their way across the Atlantic now: […]

A summer daydream, part 2

When Alice looked up, the White Rabbit had returned. ‘This is a very strange regulation’, said Alice. ‘Not at all,’ replied the Rabbit, ‘it is necessary for financial stability. Too many CCPs are considering interoperation. Why only the other day the Ruritanian equity derivatives CCP proposed an interoperation agreement with the Atlantis credit derivatives CCP, […]