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The Depository Trust & Clearing Corporation (DTCC) has released a new white paper that explores the risks created by U.S. Treasury market fragmentation. The paper, More Clearing, Less Risk: Increasing Centrally Cleared Activity in the U.S. Treasury Cash Market, examines growing concerns around the increased adoption of bilateral clearing for Treasury activity and details the benefits of unifying the market under a central clearing model.According to industry watchers, Treasury market activity today is split between two disparate clearing processes: bilaterally cleared transactions, and centrally cleared transactions via DTCC’s Fixed Income Clearing Corporation (FICC). According to the white paper, interdealer brokers (IDBs) are frequently executing transactions between FICC members and non-FICC members, in which one side of the trade is centrally cleared and the other is bilaterally cleared. The paper notes that this fragmentation is creating “contagion risk,” in part because if a non-FICC member defaults, there could be larger systemic impacts.The white paper notes that the issue of fragmentation has taken on greater urgency due to ongoing market volatility, prompting discussion among industry participants and regulators on the need for an ideal market structure. Prior to 2000, all outright purchases and sales of Treasuries through IDBs were centrally cleared. Today,...

At a time when the costs of doing business are skyrocketing, is it sustainable for banks to persevere with the current approach to trade settlement failure?While there will always be trades that fail, the tolerance levels of banking boardroom execs must be at breaking point right now if the latest Esma Trends Risks and Vulnerabilities (TVR) report is anything to go by. The study shows a dramatic surge in the level of settlement fails during the second half of March, with fails climbing to around 14 percent for equities and close to six percent for government and corporate bonds.  

Whilst a supporter of true artificial intelligence (AI) within investment management, I do have a problem with some of the references to artificial intelligence that I hear.I believe that most of us in the investment management world still do not truly understand artificial intelligence. What we often refer to as AI (and read about in the investment management media on a daily basis) is generally nothing more than intelligent rule-processing. Of course, nobody gets excited about intelligent rule-processing, whereas when you mention AI there is suddenly an air of expectation in the asset management boardroom.

The Division of Swap Dealer and Intermediary Oversight (DSIO) of the Commodity Futures Trading Commission today issued an advisory to futures commission merchants (FCMs) regarding the holding of virtual currency in segregated accounts. 

Goldman Sachs is set to become a dedicated market maker and actively stream prices for US investment-grade corporate bonds to the MarketAxess Live Markets order book for institutional credit markets.Leveraging the anonymous all-to-all Open Trading marketplace, Live Markets provides a single view of two-way, actionable prices for the most active US investment-grade bonds, including recently issued debt, benchmark issues and news-driven securities. 

The Depository Trust & Clearing Corporation (DTCC), the premier market infrastructure for the global financial services industry, today announced that its DTCC Money Market Kinetics service has been enhanced to deliver more frequent updates to critical data, helping to provide increased transparency into the volatility that has been impacting money markets since the start of the COVID-19 pandemic.  

Zach Pandl, co-head of Global Foreign Exchange, Interest Rates and Emerging Markets Strategy for Goldman Sachs Research, discusses macroeconomic risks on the minds of investors, including currency volatility and the low interest rate environment. 

When they burst into public view in 2009, the market for digital currencies was the Wild West. Bitcoin – and the many imitators that it spawned – was a fringe novelty that captured the attention of technologists and those looking for an alternative to mainstream financial services. In that early surge of activity and Utopian optimism, the digital currency market was certainly marked by innovation, but also by misunderstanding, volatility, fraud and minimal oversight.

New layers of risk and complexity call for holistic, collaborative and cross-border responses.As a vast majority of the financial industry's workforce continues working remotely, organizations are operating in entirely new ways. No one could have predicted at the end of last year that a global pandemic would impact the world's workers in 2020 and force millions of financial services staff, and staff across other industries, into a remote work environment.

As the head of fixed income trading at a European bank in 2007, Jens Kramarczik was troubled by the early stages of the US subprime mortgage crisis.He shifted out of risk assets, shorted Italian government bonds and bought the yen as a flight to safety. In this case, human judgement was the key, and the shift was made “long before the rocket science told us to,” he says. 

The International Securities Lending Association (ISLA) has formed three new steering groups to address the regulatory, digital and associated market practice changes the industry is experiencing through the recent pandemic.ISLA runs a variety of working groups for its members, covering all aspects of advocacy, tax, legal, regulation and best practice in order to allow members to discuss challenges, debate issues, conceive ideas and seek solutions. 

With net flows into sustainable funds nearly quadrupling in 2019, attracting a record $20.6 billion1, last year was widely heralded as a breakthrough year for Environmental, Social and Governance (ESG) investing. The dramatic growth provided yet more proof of the heightened demand for ESG investment options from institutional and retail investors alike. With the outbreak of the COVID-19 pandemic, ESG focused funds now face their first real test since entering the mainstream.

The Cboe Theoretical Value is a sophisticated, next-generation improvement of Cboe’s existing datasets, and forms a foundational element of Cboe Information Solutions’ options analytics product suite. This cohesive dataset helps customers better understand risk, access markets and make more informed trading decisions. Cboe Theo is now available via Cboe Hanweck here and will soon be used across Cboe’s global derivatives marketplace.

Federal regulators have slammed Citigroup for failing to correct deficiencies in enterprise-wide risk management, compliance risk management, data governance, and internal controls, hitting the bank with a $400 million fine and cease and desist order.

The FCA has published final rules banning the sale of derivatives and exchange traded notes (ETNs) that reference certain types of cryptoassets to retail consumers.The FCA considers these products to be ill-suited for retail consumers due to the harm they pose. These products cannot be reliably valued by retail consumers because of the:

FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura Company.With a month to go until the 2020 U.S. Presidential Election, the statistical model on FiveThirtyEight.com gives Democratic challenger Joe Biden an 80% chance to unseat Republican incumbent Donald Trump.  

The European Central bank is to conduct a public consultation on the possible creation of a digital euro, after a high-level taskforce sketched out possible scenarios that would require central banks to mint their own cryptocurrency.The Eurosystem task force, bringing together experts from the ECB and 19 national central banks of the euro area, reported that an increased demand for electronic payments in the euro area could require a European risk-free digital means of payment.

The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today issued its latest whitepaper, “From Physical to Digital: Advancing the Dematerialization of U.S. Securities,” outlining the necessary steps to reduce, and ultimately eliminate, certificated U.S. securities. Dematerialization, the transition from physical certificates to electronic records, would reduce the risks and costs associated with manual processing and human touchpoints, as well as increase efficiency and resiliency across the industry at a time when automation is more important than ever.

Market volatility has been the order of the day in 2020, as firms across the globe react instantly to the latest developments, whether that be Covid-19, the global economic downturn or geopolitical tensions. This volatility shows no signs of letting up, with the uncertainty around this year’s presidential election stoking yet another wave of uncertainty.

Divided opinion on the perceived risk of cryptocurrency including the links between cryptocurrency and illicit purposes were among the key findings of a global survey -- the second commissioned by RUSI and ACAMS in partnership with YouGov – and based on 566 unique responses from across the global financial and cryptocurrency industries, including cryptocurrency exchanges, financial regulators and financial intelligence units.

The European Commission has today adopted a time-limited decision to give financial market participants 18 months to reduce their exposure to UK central counterparties (CCPs).Explaining that clearinghouses, or CCPs, play a systemic role in the financial system, Valdis Dombrovskis, Executive Vice President for an Economy that Works for People, said they were adopting this decision to protect financial stability, one of their key priorities. “This time-limited decision has a very practical rationale because it gives EU market participants the time they need to reduce their excessive exposures to UK-based CCPs, and EU CCPs the time to build up their clearing capability. Exposures will be more balanced as a result. It is a matter of financial stability,” Dombrovskis added.A CCP is an entity that reduces systemic risk and enhances financial stability by standing between the two counterparties in a derivatives contract (i.e. acting as buyer to the seller and seller to the buyer of risk). A CCP’s main purpose is to manage the risk that could arise if one of the counterparties defaults on the deal. Central clearing is key for financial stability by mitigating credit risk for financial firms, reducing contagion risks in the financial sector, and increasing market transparency.Analysts...

When the COVID-19 crisis is over, or more likely being effectively managed, one of the many post-mortem exercises that will be performed is the impact of home-working and social-distancing on risk, particularly operational risk. In 2002, I was working in a huge American investment bank as a relationship manager. My clients were all investment managers owned by insurance companies – some of the biggest buy-side firms in the world. One of the key skills of being an effective relationship manager in a bank that has a strong risk management function is to know how to navigate the many intricacies of bringing in new business.   

The COVID-19 pandemic has had a significant impact on our lives and our livelihood. It has forced businesses into bankruptcy and exposed a wide range of socio-economic issues. The financial sector is not immune to the pandemic and is dealing with extreme market volatility.Early signals of financial stress were received in late March when a leading Dutch bank group announced that it marked losses in the millions due to a failed margin call. The Basel Committee on Banking Supervision quickly acknowledged the disruption and published guidance to delay phases 5 and 6 of the Uncleared Margin Rules (UMR) each by a year. This increased market volatility, and the relief from regulators has unique implications for financial institutions that require them to re-calibrate their UMR compliance efforts.

The European Central Bank (ECB) has finalised its guide showing how it assesses banks’ compliance with counterparty credit risk models and regulatory requirements.The guide outlines the methodology the ECB uses to review how euro area banks calculate their exposure to counterparty credit risk and advanced credit valuation adjustment risk.The final publication follows a public consultation which ended on 18 March.

From time to time I find myself in front of a small asset management firm that is considering a best-of-breed investment reporting solution. Usually the key driver for such firms (with, say, AuM of under £10bn) dipping their toes in the water is that they are beginning to scale up their investment management operations and are becoming increasingly aware of the inefficiencies (and risks) of their long-established inhouse reporting approach. They realise that the manually intensive processes that they recognised but tolerated when their business was small are now threatening to come apart at the seams during the key periods of the monthly or quarterly reporting cycles.