November 12th, 2018

LIBOR SCHMIBOR: What’s Next? SOFR Part II

As discussed in Part I of this article, the Alternative Rates Committee in the United States chose Secured Overnight Financing Rate (SOFR) to be the new money market benchmark in the U.S.

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November 12th, 2018

LIBOR SCHMIBOR: What’s Next? SOFR Part I

The LIBOR manipulation scandal has led regulators to recommend new money market benchmarks. This article briefly reviews LIBOR and what the potential replacements will be.

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November 12th, 2018

VIX, Volatilities and Exchange Traded Products

Volatility has always been a tricky variable to trade, whether running an options book or trading a simple covered call strategy on a single financial instrument. The combination of low volatility for a sustained period of time lulled the markets. Losing 90% of your money is never fun!

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March 22nd, 2018

Settlement Risk and Blockchain

Settlement risk has been part of the capital markets since its inception. Blockchain is the new kid on the block. Can Blockchain, sometimes referred to as Distributed Ledger Technology (DLT), help mitigate settlement risk or is it all a pipe dream?

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July 11th, 2017

Electronic Trading and Flash Crashes – Part II

Part I of this article discussed electronic trading, the differences between algorithmic trading (AT) and high frequency trading (HFT), types of systems/platforms, exchange traded versus OTC transactions, and other considerations such as colocation. In Part II, we will address different strategies and the three main flash crashes/events.

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May 12th, 2017

Blockchain – Where We Have Been & Where We Are Going

2016 was the year that saw the rise of Blockchain. Increased interest from the mass media, corporate titans across America, and the US government all led innovative approaches to using the technology. And one thing is certain – 2017 heralds much of the same trend. By the end of 2017, early-adopter financial institutions will have […]

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April 6th, 2017

Electronic Trading and Flash Crashes – Part 1

Quite often, the media has pointed its fingers at electronic trading as the cause of various flash crashes. When delivering training on Electronic Trading, I often find that people are confused by the various terms and intricacies of this market. I thought it might be a good idea to give an overview of electronic trading […]

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September 6th, 2016

The New Fiduciary Rule

In April 2016, the U.S. Department of Labor (DOL) issued its final rule expanding the “investment advice fiduciary” definition under the Employee Retirement Income Security Act of 1974 (ERISA), modifying the complex of prohibited transaction exemptions for investment activities in light of that expanded definition (the “Rule”). This is the first major rewrite to the […]

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May 31st, 2016

The Long and Short of It: An Overview of XVA

The evolution of counterparty credit risk started with counterparty (credit) limits, settlement limits and exposure measurements such as potential future exposure. This progressed to the use of unilateral collateral, then the bilateral exchange of collateral. To assist in the pricing for the cost of dealing with a counterparty in a derivative transaction, the markets have […]

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April 20th, 2016

Migration to T+2 Settlement

Reducing the trade lifecycle by 24 hours will enable market participants to better manage counterparty credit risk, optimize cash flow, enhance liquidity and harmonize the US with international settlement cycles. It also reduces the risk of investors to the default of a broker such as what the world’s financial markets experienced with the collapse of […]

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April 19th, 2016

The Long and Short of It: An Overview of STACR and CAS

Fannie Mae and Freddie Mac now have issued numerous credit risk transfer notes in this ever evolving market. This article summarizes some of the highlights of the issues/securities called Structured Agency Credit Risk or STACR, which are issued by Freddie Mac, and Connecticut Avenue Securities or CAS, which are issued by Fannie Mae.

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April 18th, 2016

Enterprise Risk Management: A Modern Consensus from Corporate Studies

Enterprise Risk Management (ERM) is one of the hottest areas in the risk management discipline today, with new advances in technology and communications creating both opportunities and challenges in the area. Experts have conducted considerable research in the field of ERM in the last fifteen years and it’s useful to understand how the consensus set […]

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April 17th, 2016

Understanding Central Counterparties (CCPs)

Central counterparty clearing houses, or more simply central counterparties (CCPs), have emerged from the 2008 financial crisis as lynchpins of the global derivatives markets, and therefore, a critical part of the infrastructure of the global financial system. But what exactly are CCPs, and what role do they play? What risks do CCPs face and how […]

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April 16th, 2016

Stressed Over Stress Testing

Stress testing has been an important part of bank risk management for many years, with some form of a test used for the analysis of credit, liquidity, and market risk exposures. Given this, you might wonder why recent regulatory requirements for stress testing have proven so challenging and have resulted in adverse findings for so […]

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April 16th, 2016

The Birth of a New Type of Bond — Reverse Yankee

The idea of borrowing on an uncovered basis in a low interest rate foreign currency has been around for many years. The Swiss franc in the 1980s, the Japanese yen in the 1990s, and more recently, Hungarian consumers taking out mortgages denominated in euros are just three examples of what once seemed like a way […]

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April 15th, 2016

Comparing and Contrasting CCAR and DFAST

The Federal Reserve System’s regulatory responsibilities include the oversight of bank holding companies (BHCs), savings and loan holding companies, state member banks, and systemically important nonbank financial institutions (SIFIs). The Fed has reacted to some of the negative outcomes associated with the recent financial crisis by creating a new framework and programs for the supervision […]

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April 15th, 2016

The Federal Reserve Tools: Past and Present

Pundits all seem to agree that, later this year, the Federal Reserve will finally raise rates. Some seem to think that will occur in June while others believe it will be September. Regardless of when it happens, now would be a good time to review how the Federal Reserve actually goes about raising rates. This […]

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April 13th, 2016

Municipals Update: the Good, the Bad, and the Groundbreaking

We thought it might be helpful to update our municipal bond market view from last year with our “crystal ball” for 2014. In this article, we will examine the overall market for any changes and insights to the future. Next, we will review two issues that have essentially been resolved. Lastly, we will move on […]

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April 13th, 2016

Accepting a Regulatory Gift: Exceeding Rising Credit Risk Quantification Standards

All of us fall short at times. Sometimes, our solid performance in one context causes us to over-estimate our ability to perform at a higher standard in another context. Sometimes the unwanted failure notification letter (or unwanted examination findings) can be a productive catalyst to elevate our game. Unfortunately for bankers, standards do not remain […]

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April 12th, 2016

Binary Options: Portfolio Destruction Theory or Market Wizardry?

It is important to view Binary Options in the correct light. They have fantastic features which, when applied correctly, can add tremendous value. Yet as a standalone investment strategy they are far too risky for the average investor with limited capital and, more importantly, limited ability to consistently stomach negative returns. For average clients, being […]

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April 12th, 2016

GSEs and Housing Finance Reform

Affordable housing has been a goal of the US Government since the Depression. Fannie Mae and Freddie Mac (the government-sponsored enterprises, or GSEs) were created to lower the cost of, and make financing more available for, Americans to purchase a home. The GSEs developed a secondary market for mortgages, which further reduced financing costs and […]

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April 11th, 2016

The Volcker Rule—Where to Begin?

As part of the on-going Dodd-Frank Act rules and regulation implementation, section 619, more commonly known as the Volcker Rule (Rule), was finalized in December 2013 with a few tweaks during the first quarter of 2014. The main undertow of the Rule is to prohibit, “[a] banking entity and nonbank financial company supervised by the […]

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April 10th, 2016

The Perfect Storm: October 2008

There have been a plethora of reasons given by the media for what created the subprime/credit crunch crises. However, in speaking with people within the industry, as well as friends and family, it appears not everyone understands the various reasons culminating in the credit crunch of 2008. No one reason, but the right blend of […]

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April 9th, 2016

Collateralized Loan Obligations

Collateralized loan obligations (“CLOs”) are structured financial transactions where certain types of loans, usually highly leveraged syndicated commercial credits, are pooled together and transferred to a trust entity called a special purpose vehicle (“SPV”).  In this article we will discuss the following: The parties involved in a CLO The CLO Stages of Development The CLO […]

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April 8th, 2016

Detecting Early Warning Signs

Appreciating that volatilities and uncertainties in our financial markets are accelerating, the ability to anticipate problems in individual issuers/borrowers is a highly valued skill. The effectiveness of how we can best spot the numerous red flags, and subsequently, how we interpret them, will be the determinate factors for success or failure in investing. Unfortunately, there […]

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April 5th, 2016

The Impact of OTC Clearing on Operations Departments

Since the G20 Summit in 2009, Operations Departments of financial services firms have been hard at work re-engineering work flows, upgrading and implementing new systems, and acquiring new skill sets to support the requirements of the Dodd-Frank mandate for clearing OTC Derivative contracts.

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April 4th, 2016

Interest Rate Swap Futures: An Introduction

The financial crisis has brought about many changes to the global financial system. One of these changes are the clearing requirements implemented by the Dodd-Frank Act for over the counter (OTC) derivatives such as interest rate swaps. These complex requirements have also increased interest in interest rate swap futures as an alternative hedging instrument. Although […]

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April 3rd, 2016

Looking through the ICE at Electronic Trading

If there was ever any doubt about the importance of electronic trading in today’s capital markets, surely the acquisition of the New York Stock Exchange by ICE (the Intercontinental Exchange, Inc. based in Atlanta, and one of the first electronic derivatives exchanges) would put the notion to rest. Looking at the corporate evolution of ICE […]

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April 2nd, 2016

Unlucky 2013 for the U.S. Municipal Market—Fact or Fiction?

The municipal market has been around for over 100 years and has been the primary engine for state and local governments to finance schools, hospitals, homes and all types of basic infrastructure. The market is deep and liquid and stands at about $3.7 trillion as compared with the $8.4 trillion corporate bond market.1 Due to […]

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March 20th, 2014

Risk Reversals

Risk reversal is a commonly used term in the FX markets. Specifically, a risk reversal is: An option strategy combining the simultaneous purchase of out-of-the-money calls (puts) with the sale of out-of-the money puts (calls). The options will have the same expiration date and similar deltas. A market view on both the underlying currency and […]

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