"Hudson Structured Capital Management, the insurance, reinsurance and transportation linked investment firm set up by ex-Goldman Sachs structured products leader Michael Millette, has closed on and secured its $250m anchor investment from Blackstone, Artemis has learned."
"LCH, the clearing business of the London Stock Exchange Group, plans to add further eligible contracts to the portfolio margining service launched this week. LCH Spider, a portfolio margining tool for interest rate derivatives, went live at the beginning of this week. Eligible members and clients using LCH’s SwapClear and Listed Rates services can now offset margin between over-the-counter and listed interest rate derivatives in order to decrease the combined initial margin they have to pay."
"However the global climate is only one of many massively complex networks where a butterfly flapping its wings can do a lot of damage – financial markets triggering price risk, social networks triggering reputation risk, cybercrime networks triggering operational risks. Traditional statistical models don’t work so well in these chaotic/complex networks. Any companies that offer solutions to this modelling problem could do well. We cover two of them – Praedicat and Meteo Project. "
"U.K. marketplace lenders might only originate $0.7 billion in 2025, according to a new Deloitte forecast. That would be a marked decrease from $4 billion in 2015 and would represent less than 1% of marketplace lenders' addressable market of personal loans, business loans, and buy-to-let property loans, according to Deloitte's math."
"Central clearing does not provide meaningful cost benefits for derivatives counterparties from either a capital or collateral perspective, according to a pair of leading academics. "The overall conclusion is that we don't find a strong, if any, capital and collateral cost incentive in favour of central clearing. The main drivers in favour are the netting comparison [against bilateral derivatives trading] and that turns out to be less favourable to central clearing than might have been expected," said Paul Glasserman (pictured below), a professor and research director in the programme for financial studies at Columbia Business School."
"European buy-side firms have until December before the largest derivatives users are required to start clearing their trades, but some say the deadline has already arrived. Under so-called frontloading provisions, all trades executed from this week onwards will be subject to the clearing requirement when the mandate kicks in – a fact that is raising questions about the sector's preparedness, and could have an immediate impact on pricing and liquidity."
"The U.S. Treasury market often is described as the deepest and most liquid market in the world. While arguably true for the six on-the-run benchmark securities, those six securities make up less than 2% of the $13.4 trillion of total outstanding supply. It is the other 98% – known as off-the-runs (OFTRs) – that should be of greater concern to market participants and policymakers alike."
"DRS' Michael Beaton explores the recently published variation margin credit support annexes (under NY law and English law) to comply with the BCBS/IOSCO Working Group on Margin Requirements (WGMR). "
"The anticipated amendments to the rules on reporting derivatives data in Ontario, Quebec and Manitoba are expected to come into force on July 29, 2016."
"In an age when shareholders come first and short-term profits are paramount, publicly traded companies like MetLife Inc. and Prudential Financial Inc. are finding it harder to compete. As rock-bottom interest rates squeeze industry margins, pressure to keep delivering returns year after year has left many with lower credit ratings and higher capital costs. That means they have to earn more from the policies they sell than mutual companies like Northwestern Mutual Life Insurance Co. and Massachusetts Mutual Life Insurance Co., which can effectively offer rebates in the form of policyholder dividends without having to worry about shareholders."
"The top U.S. derivatives regulator is cracking down on Wall Street banks’ ability to evade Dodd-Frank Act restrictions by moving some of their swaps trades overseas. The Commodity Futures Trading Commission in a 2-to-1 vote gave final approval to a rule that broadens the circumstances in which banks’ foreign units must adhere to U.S. collateral requirements, according to a statement released Tuesday. The CFTC took action after some of Wall Street’s biggest swaps dealers had stopped guaranteeing some trades booked overseas, meaning they didn’t have to fully comply with Dodd-Frank."
"But the CFTC regime only applied to foreign units of U.S. firms that had financial guarantees from their parent companies. As a result, some firms stopped guaranteeing their foreign units and escaped U.S. rules for swaps, derivatives used to hedge risk. Massad said the rule or a comparable international measure would apply to foreign subsidiaries of a U.S. parent even without a guarantee."
"This approach is an appropriate response to the complex world created by the swap industry, where global swap dealers can book a swap in a variety of ways. Dealers may book swaps through different subsidiaries, branches or affiliates all over the world, and they may do so based on a number of considerations, such as the most favorable legal treatment. Our approach is intended to protect our markets against risk coming from these cross-border transactions, while taking into account the interests of other regulators."
"the population of FCMs has diminished dramatically. A total of 72 FCMs were registered with the CFTC at the end of 2015, down from 154 in 2007 before the financial crisis and subsequent regulatory environment took its toll (see chart, below). During the same time, the customer assets deployed for futures trading remained relatively stable, raising concern around concentration risk. As of the end of 2015, 85% of client assets are held by the top 15 FCMs. Any financial stumbles by one of these FCMs would send shock waves through the capital markets."
"US tax regulations aimed at preventing withholding tax avoidance on equity derivatives may inadvertently capture a huge chunk of the exchange-traded notes (ETN) market, including those initially issued many years prior to the rule's implementation, dealers have warned."
"The increasingly widespread adoption of negative policy rates by central banks has led to a shift in the assumptions used to model interest rate derivatives. Market participants attribute the amplified interest rate volatility in 2015 to pro-cyclical hedging flows arising from this model shift. The pass-through of negative rates, and therefore the effectiveness of monetary policy at increasingly negative rates, may be constrained by 0% floors embedded in a variety of debt instruments. Specifically, FRN issuers’ funding costs may not be able to fall lower than zero. In an extreme case, there could be financial stability implications, if concerns around bank net interest margin compression and business model sustainability become systemic. But the market has already begun to adapt: new FRNs are being issued above par with elevated coupons to avoid negative rates, and issuers are making greater use of derivatives to hedge outstanding FRNs."
"Ruthlessly competitive markets have always encouraged cartel formation for risk reduction and self-preservation reasons. And while antitrust has a role to play, a much bigger role is arguably to be played by government. After all, if applying antitrust measures to markets makes them so competitive they become unviable for private interests to operate, this also threatens their existence. If the underlying services provided a worthwhile public good, it stands to reason some incentives or protections should be maintained to keep the systems operational."
"But yesterday an appeals court said, no, it can still be an antitrust conspiracy: When a bunch of competitors get together to fix prices, even if that is kind of what Libor was anyway, that just looks so much like an antitrust violation that it has to be one. "Horizontal price-fixing constitutes a per se antitrust violation," said the court. Again, I am not an antitrust expert but I find this kind of convincing too. I mean, they (allegedly) conspired to fix prices. Amidst all the dumb Libor e-mails and chats, one trader called it a "cartel." It sure sounds like an antitrust problem."
"Working with a group of data scientists, former regulators, economists and academics that include Thomas Day, co-managing partner of software firm FinRenaissance, Mendelowitz has helped to create open source software designed to bring order to the way financial data is collected and analyzed."
"After years of posting huge litigation charges and paying enormous penalties and fines, big banks had finally moved beyond the fallout from the financial crisis. In recent quarters, banks reported quarterly results that didn’t include big charges for expected legal costs. Monday’s decision by the Court of Appeals for the Second Circuit is likely to bring this brief golden era to an end. The court reversed a lower court’s dismissal of antitrust claims against the banks in connection with manipulating the London interbank offered rate, or Libor. Bank of America, Citigroup and J.P. Morgan Chase are defendants in the affected lawsuits, along with other banks."