Next year the market is set to see the introduction of mandatory client clearing in Europe, after several false starts, but what effect will this have on relationships, and what does the future hold, post-mandate. Alice Attwood reports.
"Pension funds are pressing the Bank of England (BoE) to act as a liquidity provider of last resort in times of stress, to help address fears about the impact of clearing regulation on the sector."
"The fastest movers in the $12.8 trillion Treasury market, known as high-frequency traders, are making it more challenging for investors to assess the depth of the market, according to research from the Federal Reserve Bank of New York."
"Solving the liquidity puzzle in corporate bonds will not happen overnight, but the most effective solutions will take into account where the market is heading as well as where it is now. UBS Bond Port’s strategy underscores our conviction that openness, choice and connectively give clients the best opportunity to achieve quality, cost-effective execution in this evolving market."
"How will you be trading in the fixed income markets in five years’ time? Not sure? You’re not alone! For many buy-side trading desks, the only certainty is that their current trading technology infrastructure will be insufficient to handle the challenges ahead."
"The issue of high-frequency traders who cancel a lot of their orders seems to have been in the news a bit recently, so let's kind of reason it out from first principles. "
"The basis between UK interest rates and swap discount rates is being blamed for a six-fold surge in the cost of interest rate hedging for UK pension funds. Some are considering changing ages-old hedging policies, while banks, which have to manage the risk between the two rates, are encouraging the switch."
"Isda has selected the financial benchmarks arm of the InterContinental Exchange to build and operate a crowd-sourcing utility for the industry-developed Standard Initial Margin Model for managing the exchange of collateral backing uncleared swaps transactions."
"While low-latency cross-market trading has undoubtedly led to more consistent pricing of Treasury securities and derivatives, there is strong evidence that it has also resulted in a more complex and dynamic nature of market liquidity. Under the new market structure, it has arguably become more challenging for large investors to accurately assess available liquidity based on displayed market depth across venues. The striking cross-market patterns in trading and order book changes suggest that quote modifications/cancellations by high-frequency market makers rather than preemptive aggressive trading are an important contributing factor to the liquidity mirage phenomenon."
"The combination of the weight of scientific evidence and the dynamics of the financial system suggest that, in the fullness of time, climate change will threaten financial resilience and longer-term prosperity."
"Introducing new rules requiring derivatives participants to apply International Securities Identification Numbers (ISINs) to their OTC trades is ‘impossible’, according to an industry expert."
"The EU has started conversations on a capital markets union, raising questions about integration of services such as finance. This column argues that regulated services are especially important for the European economy. Europeans will eventually be faced with a choice between maintaining sovereignty and building a single market. Whereas the ‘old’ single market in goods and unregulated services was satisfactorily addressed through standards harmonisation, the new single market challenge is all about regulatory enforcement institutions."
"The buy side says inconsistency in how brokers pass on leverage ratio costs, increased market concentration and other factors would keep their clearing costs high"
"Asset managers could realise significant cost savings by internalising some of their swaps flow, but CFTC rules prevent them from doing so"
"Global financial firms’ estimated $100 billion or more exposure to Glencore Plc may draw more scrutiny as regulatory stress tests approach after the commodity giant’s stock plunge this year, according to Bank of America Corp."
"The US Geological Survey (USGS) has begun using data from Twitter to detect earthquakes. In a blog post published this week, Twitter explains how the USGS, the government body responsible for tracking seismic activity, used the company's public API to identify earthquakes across the world based on tweets that users post."
"During the financial crisis, several governments bailed out failing financial institutions because letting the firms fail and enter insolvency would have caused excessive disruption to the critical services that these institutions provide and to the wider financial system. Following the crisis, the framework for managing the failure of financial firms was reformed and a new tool, known as bail-in, was developed. Bail-in allows the authorities to make sure that shareholders and creditors of a firm bear the costs of failure, without recourse to public funds."