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March 10, 2014

Weekly Roundup | Clearing & Risk Management | 10 March 2014

Attached Document

New Opportunities and Challenges for Global CCPs (Davis Polk)

 

Clearing

SwapClear Segregation Models

Whilst the Individual Seg and Omnibus segregation models are well understood, SwapClear has come up with an approach to protection which offers four permutations of protection which allow a Client to mix and match what risk they take to other Clients.

 

Korea Clearing Structure in Question After HanMag Trading Error

A trading error by HanMag Securities last December saw all members of KRX's listed derivatives platform lose a portion of their default fund contributions – but the exchange itself paid nothing. Risk: Korea clearing structure in question after HanMag trading error.

 

Clearing Risks, Kimchi Edition

Major banks are having major concerns about the risks associated with CCPs in the aftermath of a failure of  a Korean brokerage firm that resulted in the mutualization of losses on the KRX.  The firm failed due to a fat-finger error (puts? calls? whatever!) and its margins were insufficient to cover its trading losses. Streetwise Professor: Clearing Risks, Kimchi Edition.

 

CME Uncertain about Success of OTC Clearing Business, According to SEC Filing

The Chicago Mercantile Exchange has filed its annual report to the SEC today, containing some key currency trading metrics and shedding light on its evaluation of the markets and regulations. Forex Magnates: CME Uncertain about Success of OTC Clearing Business, According to SEC Filing.

 

Split Reaction to International Firms' Asia Clearing Plans

Ice, CME and Eurex have all staked a claim on the Asian clearing markets via a range of methods including buyouts, tie-ups and new ventures – but it’s not clear if their moves will be successful. Risk: Split Reaction to International Firms' Asia Clearing Plans.

 

CFTC Weekly Swaps Report: Over $209 Trillion in Interest Rate Swap Volume Cleared From February 17-21

As part of its efforts to encourage transparency in the swaps market, the CFTC developed a Weekly Swaps Report, which provides a detailed view of trading activity in the swaps market. DerivAlert: CFTC Weekly Swaps Report: Over $209 Trillion in Interest Rate Swap Volume Cleared From February 17-21.

 

Risk Management

EU Banks Fear Capital Hit from CCP Approval Delays

For banks to apply a 2% risk-weight, non-EU CCPs must be approved by Esma and their home-country rules by the EC. That process has to be complete by June 15 but banks now fear that will not happen in some cases.

 

If It Doesn’t Work as a Hedge Fund Strategy, Try Making Policy with It

Capital structure ‘arbitrage’ is largely discredited as a hedge fund strategy for the rather good reason that a lot of people lost a lot of money on it. An arbitrage, remember, is supposed to involve a risk-free profit. But using the Merton model or its variants to ‘arbitrage’ between different parts of the same companies’ capital structure didn’t work very well — or, at least, it worked well until it didn’t. Deus Ex Macchiato: If It Doesn’t Work as a Hedge Fund Strategy, Try Making Policy with It.

 

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