Good luck to Roger Barton, until recently managing director and head of regulatory policy for Europe at Tradeweb, who has left to set up a consultancy specialising in market structures and regulatory reform. The firm is called Financial Reform Consultancy.
Many companies certainly need help of this sort to help navigate through the hugely complex and rapid changes being caused by new regulations in the US and EU. Even keeping up with the huge reading list generated by regulation is an massive task in itself - making sense of it and evaluating it on a holistic basis to assess business impact is something few do well.
Monday, March 14, 2011
Japan's CCP connundrum
Derivatives Week 14th March 2011 edition is reporting that Japan's Regulators are seeking to provide clearing members with limited liability at the same time as preserving the local law which precludes a CCP from going bust.
The reported solution for who should pick up losses in the event of a default exhausting the resources of the CCP, which includes capped contributions of surviving members, is to declear trades back to their original counterparties.
This is an awful solution, widely rejected in almost all major CCPs, for several reasons.
Firstly, it removes certainty from clearing. As a consequence, counterparties will retain a contingent exposure to their original counterparty, with a consequential capital requirement.
Secondly, in most CCPs, trades are offset with each other to create net positions with the CCP. Under this model, one clearly cannot net trades since preserving the identity of the original counterparty is essential if trades are to ever be re-allocated back. As a result, whilst one may have exited a position some months/years ago, a potential exposure remains if those trades are ever unwound by the CCP to revert back to a bilateral exposure. To close such an exposure in the ordinary course of business, one may have to do offsetting trades with the original counterparty, but even that may not suffice depending upon how the CCP determination of unallocated trades works.
Whilst members cannot be exposed to an unlimited liability in order to keep a CCP afloat, and the possibility of a CCP failure sends terror into the heart of regulators, operating contingent clearing simply creates other unpalatable problems.
I sincerely hope that the groups working on this will come up with a more palatable solution, hamstrung as they are by the notion that a CCP may not go bust.
The reported solution for who should pick up losses in the event of a default exhausting the resources of the CCP, which includes capped contributions of surviving members, is to declear trades back to their original counterparties.
This is an awful solution, widely rejected in almost all major CCPs, for several reasons.
Firstly, it removes certainty from clearing. As a consequence, counterparties will retain a contingent exposure to their original counterparty, with a consequential capital requirement.
Secondly, in most CCPs, trades are offset with each other to create net positions with the CCP. Under this model, one clearly cannot net trades since preserving the identity of the original counterparty is essential if trades are to ever be re-allocated back. As a result, whilst one may have exited a position some months/years ago, a potential exposure remains if those trades are ever unwound by the CCP to revert back to a bilateral exposure. To close such an exposure in the ordinary course of business, one may have to do offsetting trades with the original counterparty, but even that may not suffice depending upon how the CCP determination of unallocated trades works.
Whilst members cannot be exposed to an unlimited liability in order to keep a CCP afloat, and the possibility of a CCP failure sends terror into the heart of regulators, operating contingent clearing simply creates other unpalatable problems.
I sincerely hope that the groups working on this will come up with a more palatable solution, hamstrung as they are by the notion that a CCP may not go bust.
Sunday, May 10, 2009
Free Sugarsync is a sweet deal for Blackberry & iPhone users
I use a few auto back-up & sync tools in parallel including Live Mesh and Drop Box, supplemented by cloud storage services like ADrive, Live, Flickr, Google docs etc which I access via the excellent Gladinet application that makes them virtual drives within windows explorer.
So when I saw SugarSync had released a free service with 2gb online storage included I wasn't overly excited as it seemed to be a poor substitute for my existing services. However, I then spotted its' trump card - a native blackberry app which allows a user to access their files from their device AND to sync changes made using Documents to Go back to the PC. Likewise, photos taken on the Blackberry device can automatically be synched. Finally you can send files held within SugarSync from your device.
Multiple devices can be linked to a User's account and their files made accessible.
Since installing SugarSync on the Blackberry, I've had no problems and have been impressed with the features above, as well as its ease of use. Moreover, it has happily co-existed with my existing desktop sync services on the same folders and files, and now provides an additional layer of comfort.
Sugarsync has similar native apps for the iPhone amongst others.
Definitely worth installing.
So when I saw SugarSync had released a free service with 2gb online storage included I wasn't overly excited as it seemed to be a poor substitute for my existing services. However, I then spotted its' trump card - a native blackberry app which allows a user to access their files from their device AND to sync changes made using Documents to Go back to the PC. Likewise, photos taken on the Blackberry device can automatically be synched. Finally you can send files held within SugarSync from your device.
Multiple devices can be linked to a User's account and their files made accessible.
Since installing SugarSync on the Blackberry, I've had no problems and have been impressed with the features above, as well as its ease of use. Moreover, it has happily co-existed with my existing desktop sync services on the same folders and files, and now provides an additional layer of comfort.
Sugarsync has similar native apps for the iPhone amongst others.
Definitely worth installing.
Anagram for Blackberry
Anagram is a free app for the Blackberry which simplifies the creation of contacts and diary appointment from emails on your device. Similar to desktop apps like grabit, by highlighting the relevant text in an email, Anagram creates and populates the fields in a new record which you can elect to discard, edit/save.
As someone who uses a blackberry extensively, I'm familiar with the inconvenience of creating a record manually from email signatures and so immediately recognise the benefit Anagram offers.
In my tests, I found it gave mixed results, having most trouble distinguishing between titles, companies & addresses. Yet even where it did slip up, it normally grabbed the phone & email details accurately and hence had saved some time/effort.
Happy to recommend it.
Thursday, March 12, 2009
Saturday, February 28, 2009
Bank short-sellers deserve an apology
When UK bank shares began their torrid falls in October 2008, the baying hounds were calling for the heads of short sellers who had unjustly brought "strong and viable" banks to the brink of a collapse of confidence.
Yet as the details of the financial results emerged this week, with huge write-downs, the press coverage ironically seemed to chime with the views held by short sellers at the time - the bank balance sheets were stuffed with toxic debt. The only difference was the timing of their comprehension - short sellers realised long before and saw that it was not reflected in the over-inflated share price.
One might now justifiably argue that those who called the share price falls unwarranted were either incompetent or self-serving in attempting to maintain a bubble. As was often mentioned, market manipulation and trying to create a false market is illegal, but the guilty parties were those insisting higher prices were warranted and demanding measures to prevent price falls. Sadly, no prosecutions will occur.
This episode has re-enforced the importance of short selling. These investors put money behind the conviction that things aren't as great as some would have us believe. In doing so, they stand to lose a fortune if they are wrong, profiting only when hubris is dispelled and reality is restored. Unfortunately, it's only in the case of the Emperor's clothes that we admire the person that pricks the illusion.
Yet as the details of the financial results emerged this week, with huge write-downs, the press coverage ironically seemed to chime with the views held by short sellers at the time - the bank balance sheets were stuffed with toxic debt. The only difference was the timing of their comprehension - short sellers realised long before and saw that it was not reflected in the over-inflated share price.
One might now justifiably argue that those who called the share price falls unwarranted were either incompetent or self-serving in attempting to maintain a bubble. As was often mentioned, market manipulation and trying to create a false market is illegal, but the guilty parties were those insisting higher prices were warranted and demanding measures to prevent price falls. Sadly, no prosecutions will occur.
This episode has re-enforced the importance of short selling. These investors put money behind the conviction that things aren't as great as some would have us believe. In doing so, they stand to lose a fortune if they are wrong, profiting only when hubris is dispelled and reality is restored. Unfortunately, it's only in the case of the Emperor's clothes that we admire the person that pricks the illusion.
Sunday, February 8, 2009
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