"As the financial industry continues to tackle the challenge of collateral management it is only natural for a range of solutions to be touted as the ‘savior’ of said troubles. One such phenomenon is blockchain, the cryptographic ledger system stemming from the Bitcoin revolution and heralded by many in the industry as there future of finance."
"Central clearing is a "mess" as a result of the impact of the leverage ratio on clearing brokers, according to buy-side market participants, but in limited circumstances asset managers may consider clearing earlier than they have to."
"Stephen Maijoor, chairman of the European Securities and Markets Authority, has written to the European Commission saying that the new regulations, which cover clearing for banks which are not full members of a clearing house, will be postponed pending a public consultation."
"A credit market curiosity, presented for your enjoyment. Here is so-called 'skew' in Markit's North American High Yield CDX, a derivatives index tied to the credit default swaps (CDS) of 100 junk-rated companies and one of the most liquid credit-trading instruments around."
"The rise of alternative reinsurance capital has seen it transform from a disruptive market force to being used by the majority of global re/insurers in some form, but the more traditional, experienced players will still deal with the more complex, complicated risk layers, according to industry experts."
"Some senior finance executives are warming to the idea that blockchain technology could be a catalyst for greater integration of Europe’s financial markets by helping break down some of the long-standing barriers to cross-border investment."
Investors have been rattled in the past year by three major eruptions of volatility in bonds, currencies and equities, episodes that have understandably shocked human traders, but also revealed the shortcomings of high-powered computing systems. With transacting across markets dominated by computer algorithms, also known as high-frequency trading, the inability of such systems to cope with an avalanche of orders during peak periods of market stress, has focused attention on their limits.
"Yup. The consumer value proposition in ApplePay (and other digital wallets) is really limited. Sure, you look cool paying with your phone, but if you're like the woman in front of me at Whole Foods this summer, you're going to get very frustrated when it takes a minute to get ApplePay to work. (I was ready to tell her to write a check.) ApplePay doesn't currently offer significant benefits over paying with traditional plastic cards."
"Options traders face a challenging predicament that has developed over the past several years: a decline in the number of market makers that provide liquidity, and an increase in the number of exchanges, which has served to disperse liquidity."
"Recent commentary suggests concern among market participants about corporate bond market liquidity. However, we showed in our previous post that liquidity in the corporate bond market remains ample. One interpretation is that liquidity risk might have increased, even as the average level of liquidity remains sanguine. In this post, we propose a measure of liquidity risk in the corporate bond market and analyze its evolution over time.
"Big data refers to companies or other institutions using digital information on consumer behavior from a wide variety of sources, such as their own databases, to make market predictions or spot patterns. The global financial services industry is expected to spend billions of dollars in coming years to improve their analysis capabilities. But civil liberties campaigners have expressed concerns that use of such data could breach personal privacy. They also say it could be misused to discriminate against certain sections of the population in so-called profiling, for example based on age, gender, health or ethnic background."
"Intercontinental Exchange's Singapore clearing house, which acts as an important firewall between traders, has been recognized by the European Securities and Markets Authority as meeting the continent's standards, while its US and European units have yet to gain that status."
"We introduce a novel method (based on Illing et al. (2006) and popularized by Holló et al. (2012) through the CISS measure) to aggregate different groups of liquidity measures (percent-cost proxies, cost-per-volume proxies, etc.), in order to accommodate for the ‘different dimensions of liquidity’ (Amihud et al., 2005) through a single ‘unified’ market-wide aggregate liquidity metric. "
"The substituted compliance regulatory framework is currently being phased in for cross-border over-the-counter (OTC) derivatives transactions involving US and, in some instances, non-US dealers. Implementation of a substituted compliance regime revealed significant flaws in how regulators approached the extraterritorial application of their authority. This article revisits the approach to substituted compliance with OTC derivatives rules and suggests that a calibration of this approach, which would create a more flexible framework while not affecting allocation of systemic risk, is required."
"CAMERON AND TYLER Winklevoss were among a group of investors who put $1.5 million into BitInstant, a bitcoin exchange founded by a guy named Charlie Shrem. Shrem was also a founding member of The Bitcoin Foundation, the not-for-profit created to oversee the bitcoin digital currency. He’s now in federal prison."
Investment firms are accounting for an ever-larger share of derivatives trading volumes. The Buy-side Derivatives 2015 survey, conducted recently by Asia Risk and sponsored by Calypso Technology, reveals the challenges these firms are facing in terms of both regulation and technology, and how these challenges are being addressed.
"With the growth of electronic trading and ongoing pressure for risk and regulatory transparency, efficiently identifying the product being traded is increasingly important. But OTC instruments, by their nature, tend to be bespoke products, and any market-wide initiative attempting to deliver a standard identifier will have to balance the benefit from the commoditization of OTC derivatives while leaving enough room for innovation."
"Following on from my recent article on MiFID II and Transparency for Swaps, I wanted to look into another key item in the ESMA Final Report; namely the obligation for derivatives to only be transacted on a Trading Venue."
"This week, we will publish a series of blog posts that shed light on the evolving nature of market liquidity. This follows an initial series of blog posts on market liquidity, published in August. We kick off the current series with a post that examines various measures of liquidity in the corporate bond market. The two following posts measure liquidity risk in the corporate bond, Treasury, and equity markets. We then examine the changing role of dealers by presenting estimates of returns to market making, and we consider the part played by dealers in supplying liquidity when mutual funds face redemptions. Finally, we examine the potential for increased uncertainty about the level of liquidity in markets where high-frequency trading is common."