News

Liquidity Risk

Our think-tank friends at JWG-IT organised a great event yesterday, with several of the top banks coming together to share their thoughts on what is currently causing them the most pain in implementing the FSA liquidity risk requirements (see FSA Consultative Paper CP08/22 for background).

A few points I took from the meeting:

FSA is moving from a "principles" based approach to regulation to "outcomes" on to "proof of judgement" as the basis for assessing financial institutions What liquidity stress tests the FSA wants the financial institutions to perform is still far from clear The above uncertainty is not helping when combined with an implementation deadline of this October Whether liquidity risk must be managed at the branch or group level is a key unanswered question which has enormous implementation implications The data requirements are enormous and since a group-wide issue requirements greater central access to data across all departments – unlike traditional market risk which is currently more siloed within each business division The granularity of data required (down to transactions, detailed cashflows for complex derivatives) is very challenging Management of intraday liquidity requires real-time cash transaction reporting which is currently not being done/is difficult to do "Ownership" of liquidity risk implementation typically resides within a bank's treasury function but awareness, ownership and involvement of all departments (e.g.…

Liquidity Derivatives – the next OTC?

Given the drive the FSA is making in forcing financial institutions to implement “Liquidity Risk Management”, (see background on JWG-IT site) are we going to see renewed interest in the creation of “Liquidity Derivatives” to hedge liquidity risk? I found the following post on the subject applied to hedge funds but not much information else where, although Tony Jackson did an interesting article on liquidity in the FT last week, indicating that liquidity derivatives have been tried before with little success.…

OTC Valuation by SGSS

Given all the recent attention that OTC derivatives have received (see Geithner letter), then a topical update on the work we have done with Societe Generale Security Services (SGSS) on OTC and structured product valuation services has been written up on Securities Industry News.…

Alternatives Need a Bigger Umbrella?

Interesting article in the FT today about why the US exodus from traditional exchanges might not be repeated here in Europe, which is contrary to the recent marketing mantra of the alternative trading venues such as Chi-X, Turquoise and Equiduct. If correct, the economics outlined in the article look justifiably prohibitive:

“Merely to break even, an alternative platform with a cost base of about €10m would need to do 100m trades a year.…

Microsoft CEP Surfaces as “Orinoco”

Seems like Microsoft have now gone public on the Microsoft TechEd site that they have a Complex Event Processing (CEP) engine that will be coming to market shortly (see MagmaSystems blog post). One of my colleagues Mark Woodgate attended a briefing event at Microsoft for this technology back in February this year – here’s an extract from some internal notes that Mark made back then:

“Microsoft CEP is very similar to StreamBase conceptually (and not unsurprisingly), in the sense that there are adapters and streams and how you merge and split them via some kind of query language is the same.…

Regulating OTCs Out Using Capital?

Following on from the warnings on over-regulation in my post last week on the OTC markets in London, Larry Tabb of the analyst firm the Tabb Group is pointing towards increased capital requirements as the stick the regulators will use to move the finance industry away from the perceived dangers of the OTC markets (see article here).…

Data Quality and the Future of Risk

A new survey from the Economist Intelligence Unit (sponsored by SAS) of over 300 financial institutions world-side has put data quality and availability as a key issue to be resolved if risk management is to be fit for purpose following the financial crisis:

"Culture, expertise and data are weak points in current risk management"

A summary of the survey report is available here.…

Analytics Management from Celent

A new report from the analyst firm Celent advocating enterprise transparency and consistency in the pricing of OTC derivatives and structured products – great that an analyst firm is acknowledging the need for analytics management as a complimentary discipline to the more established principles of data management.…

Technical and Human Analysis

The FT Alphaville Blog put up a post earlier this week about Bloomberg being critical (see article) of technical analysis and its ability to make money using techniques such as "Bollinger Bands". In summary Bloomberg have backtested some of the most common technical analysis strategies over recent years and found the majority of them have lost money.…

Less risk on the buy-side?

Interesting but counter-intuitive survey results discussed on the Advanced Trading blog, suggesting that risk function has lost status at buy-side institutions.…