Fundamental review of the trading book news

The second consultative document on the fundamental review of the trading book is out: you can read it here. A few highlights: “The Committee remains sceptical that existing internal models-based risk measurement methodologies used by banks can adequately capture the risks associated with securitised products. As a result, capital charges for securitisation positions in the […]

Fire sales in securities financing markets

Jeremy Stein, Governor of the NY FED, gave an interesting speech at their recent workshop on Fire Sales as a Driver of Systemic Risk in Triparty Repo and other Secured Funding Markets (HT FT Alphaville). He gave two examples of the kind of situation that worries the FED. Example 1: Broker-dealer as principal In this […]

Increasing credit risk, um, increases credit risk (clearing edition)

Yeah, it’s not surprising is it? But you might be forgiven for thinking that there’s something here if you read a post by the Streetwise professor on clearing. To save you time, here’s the short version: IM is, by design, bigger than the expected exposure on a portfolio of cleared derivatives. If you trade the […]

Conditional pass through covered bonds

NIBC has launched a variant on the covered bond which has an interesting structure. This conditional pass through changes what happens if the issuer defaults. Then, if liquidity in the asset pool is insufficient to redeem the bond, and the pools fails an am test (i.e. the pool would not be sufficient to redeem the […]

Quantifying the subprime lies

From Piskorski et al., a lovely idea: We contend that buyers received false information about the true quality of assets in contractual disclosures by intermediaries during the sale of mortgages in the $2 trillion non-agency market. We construct two measures of misrepresentation of asset quality — misreported occupancy status of borrower and misreported second liens […]

A milestone in European CCP policy

News point of the day, from Eurex: On 11 October 2013, Eurex Clearing received confirmation from its competent national authority BaFin(Federal Financial Supervisory Authority) that Eurex Clearing’s application under Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR) has […]

Knight check

Amusing details from the SEC proceeding against HFT firm Knight: To enable its customers’ participation in the Retail Liquidity Program (“RLP”) at the New York Stock Exchange, which was scheduled to commence on August 1, 2012, Knight made a number of changes to its systems and software code related to its order handling processes. These […]

Winter is coming

Delacroix? Géricault? Something like that…

Why did it take so long?

Risk magazine (HT the OTC space) reports that dealers are posting illiquid assets as initial margin against OTC derivatives portfolios to reduce capital requirements. Such assets require large haircuts, of course, but the dealers have plenty of them, so that’s OK. My only question is why it took so long for them to figure this […]

What is a precautionary recapitalisation?

Mario Draghi’s letter to Commissioner Almunia on European Union bail-in rules (the whole text of which, interestingly, I cannot find on-line), has been making the news. Reuters reports that he suggests that Banks that are still viable but need state aid to boost their capital base should be allowed to receive help without inflicting losses […]

Boring, mostly easy, and oh-so important

Matt Levine, who had fallen off a bit at Bloomberg from his stellar performance at Dealbreaker (something I suspect has more to do with Bloomberg than him), bounces back with a lovely column on the case of John Aaron Brooks‘ mis-marking: Brooks was mismarking Nymex ethanol futures, which trade on an exchange (the Nymex) and […]

Yahoo unveils plan to make users hate it

Typically accurate Daily Mash story. The new Yahoo mail interface really sucks.

Liquidity economics

I had heard of this but never seen it until recently: this is a part of the Phillips Hydraulic Computer or Monetary National Income Analogue Computer. Personally I agree with Simon Wren-Lewis: more data-based empirical models which give some insight into a key issue or two, like Phillips’, and fewer theoretically sound models ignorant of […]

A man ignorant of lexicography

In an interview with New York magazine, Antonin Scalia says Words have meaning. And their meaning doesn’t change. Really?

The CDS market vs. Paddypower

From the Paddypower website: From the CDS market: Wot, an arbitrage? Well, OK, there might be an issue in doing big enough size on PaddyPower, I agree, but hey, I do like the idea of buying cheap CDS protection then hedging by selling on a political betting website.

Can the US mortgage market be privately funded?

Naked Capitalism links to testimony given to the Senate Banking Committee testimony by Georgetown law professor Adam Levitin. Levitin makes an interesting claim that private sources of residential mortgage funding will be able to support no more than $500 billion of annual housing finance; [while] the US housing finance market needs anywhere between $1.5 trillion […]

Mary Jo addresses the oxymoron

From SEC chair, Mary Jo White: Equity exchanges today operate fully electronic, high-speed trading systems using a business model that mostly was developed by electronic communications networks, or ECNs… Exchanges differ from ECNs, however, in significant respects. Exchanges, for example, continue to exercise self-regulatory functions, even as they operate as for-profit entities. This model for […]

Erudite political theory

I am acquainted with some scholarly political theorists, so I pride myself that this blog has an extremely high standard of discussion of these issues. In this spirit, then, I offer you: BTW, I am lead to believe that US Treasuries do not have cross default clauses. That fact may, just possibly, be material in […]