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OTC Derivatives: Bilateral Trading and Central Clearing by David Murphy Pdf
After the credit crisis, supervisors enacted a range of financial reforms. In particular, they radically changed the nature of the OTC derivatives market via a number of measures, notably mandatory central clearing. This book discusses the market before the crisis, explains what central clearing is, and outlines the consequences of the new rules.
Over-the-counter Derivative Products by Robert M. McLaughlin Pdf
"Over-the-Counter Derivative Products is the first clearly-written, systematic derivatives book for fiduciaries, senior executives, and lawyers of corporations, banks, pension funds, insurance companies - anyone who needs to know more about the booming derivatives marketplace. Written in layman's terms by globally-experienced derivatives and finance attorney Robert M. McLaughlin, Over-the-Counter Derivative Products is filled with examples, case histories and quotes from leading financial economists and legal writings that vividly bring today's derivatives marketplace to life."--BOOK JACKET.Title Summary field provided by Blackwell North America, Inc. All Rights Reserved
Regulation and Supervision of the OTC Derivatives Market by Ligia Catherine Arias-Barrera Pdf
The over-the-counter (OTC) derivatives market has captured the attention of regulators after the Global Financial Crisis due to the risk it poses to financial stability. Under the post-crisis regulatory reform the concentration of business, and risks, among a few major players is changed by the concentration of a large portion of transactions in the new market infrastructures, the Central Counterparties (CCPs). This book, for the first time, analyses the regulatory response of the United Kingdom and the United States, the two largest centres of OTC derivatives transactions, and highlights their shortcomings. The book uses a normative risk-based approach to regulation as a methodological lens to analyse the UK regime of CCPs in the OTC derivatives market. It specifically focuses on prudential supervision and conduct of business rules governing OTC derivatives transactions and the move towards enhancing the use of central clearing. The resulting analysis, from a normative risk based approach, suggests that the UK regime for CCPs does not fulfil what would be expected if a coherent risk based approach was taken. Our comments on the Dodd-Frank Act highlight that the incoherent adoption of risk-based approach to regulation affects the effectiveness of the US regime for CCPs. Such a regime does not follow the pace of events of ‘innovation risk’; in particular, the foreseeable changes FinTech will bring to the OTCDM and central clearing services. The second inadequacy of the US regime concerns the dual regulatory structure of the CFTC and the SEC, and the inadequate adoption of different and not well-coordinated regulatory strategies. We also analyse the cross-border implications of the US regime for non-US CCPs that provide clearing services to US market participants. Finally, we study the negative effects of the absence of a clearly defined resolution regime for CCPs.
Discriminatory Pricing of Over-the-Counter Derivatives by Hau Harald,Peter Hoffmann,Sam Langfield,Mr.Yannick Timmer Pdf
New regulatory data reveal extensive price discrimination against non-financial clients in the FX derivatives market. The client at the 90th percentile pays an effective spread of 0.5%, while the bottom quarter incur transaction costs of less than 0.02%. Consistent with models of search frictions in over-the-counter markets, dealers charge higher spreads to less sophisticated clients. However, price discrimination is eliminated when clients trade through multi-dealer request-for-quote platforms. We also document that dealers extract rents from captive clients and market opacity, but only for contracts negotiated bilaterally with unsophisticated clients.
Collateral, Netting and Systemic Risk in the OTC Derivatives Market by Mr.Manmohan Singh Pdf
To mitigate systemic risk, some regulators have advocated the greater use of centralized counterparties (CCPs) to clear Over-The-Counter (OTC) derivatives trades. Regulators should be cognizant that large banks active in the OTC derivatives market do not hold collateral against all the positions in their trading book and the paper proves an estimate of this under-collateralization. Whatever collateral is held by banks is allowed to be rehypothecated (or re-used) to others. Since CCPs would require all positions to have collateral against them, off-loading a significant portion of OTC derivatives transactions to central counterparties (CCPs) would require large increases in posted collateral, possibly requiring large banks to raise more capital. These costs suggest that most large banks will be reluctant to offload their positions to CCPs, and the paper proposes an appropriate capital levy on remaining positions to encourage the transition.
Derivative Market Competition by Mr.Jens Nystedt Pdf
Recent regulatory initiatives in the United States have again raised the issue of a 'level regulatory and supervisory playing field' and the degree of competition globally between over-the-counter (OTC) derivatives and organized derivative exchange (ODE) markets. This paper models some important aspects of how an ODE market interrelates with the OTC markets. It analyzes various ways in which an ODE market can respond to competition from the OTC markets and considers whether ODE markets would actually benefit from a more level playing field. Among other factors, such as different transaction costs, different abilities to mitigate credit risk play a significant role in determining the degree of competition between the two types of markets. This implies that a potentially important service ODE markets can provide OTC market participants is to extend clearing services to them. Such services would allow the OTC markets to focus more on providing less competitive contracts/innovations and instead customize its contracts to specific investors' risk preferences and needs.
OTC Markets in Derivative Instruments by Nick Cavalla Pdf
To date, most academic and practical texts have concentrated on the exchange-traded markets and focused on the nature and price characteristics of the various listed instruments. By contrast, OTC Markets in Derivative Instruments deals in detail with the complexities of the over-the-counter markets - extending a description of the core products to a discussion of real world applications and risks. Regulatory, accounting and tax issues are also covered. Contributors include Bankers Trust, BZW, GNI, Goldman Sachs, J.P. Morgan, Natwest Futures, Midland Montagu and Mitsubishi.
Practical guidance toward handling the latest changes to the OTC derivatives market Central Counterparties is a practical guide to central clearing and bilateral margin requirements, from one of the industry's most influential credit practitioners. With up-to-date information on the latest regulations imposed after the global financial crisis, this book covers the mechanics of the clearing process and analyses the resulting consequences. Detailed discussion explains the ways in which the very significant clearing and margining rules will affect the OTC derivatives market and the financial markets in general, with practical guidance toward implementation and how to handle the potential consequences. Over-the-counter derivatives were blamed by many for playing a major role in the 2007 financial crisis, resulting in a significant attention and dramatic action by policymakers, politicians, and regulators to reduce counterparty credit risk which was seen as a major issue in the crisis. The two most important regulatory changes are the mandatory clearing of standardised OTC derivatives, and the requirements for bilateral margin posting in non-standard OTC contracts. Central Counterparties is a complete reference guide to navigating these changes, providing clarification and practical advice. Review the mitigation of counterparty credit risk with the historical development of central clearing Clarify the latest regulatory requirements imposed by Dodd-Frank, EMIR, Basel III and more Learn the mechanics of central clearing, with special attention to complex issues such as margin calculations, the loss waterfall, client clearing and regulatory capital rules Gain insight into the advantages and disadvantages of clearing and bilateral margin requirements, and the potential issues that arise As the clearing and margining mandates are phased in, the associated costs will be severe enough to dramatically shift the topology of the financial markets and transform the nature of risk. Central Counterparties provides the information, clarification and expert insight market practitioners need to get up to speed quickly.
Counterparty Risk in the Over-The-Counter Derivatives Market by Miguel A. Segoviano Basurto,Manmohan Singh Pdf
The financial market turmoil of recent months has highlighted the importance of counterparty risk. Here, we discuss counterparty risk that may stem from the OTC derivatives markets and attempt to assess the scope of potential cascade effects. This risk is measured by losses to the financial system that may result via the OTC derivative contracts from the default of one or more banks or primary broker-dealers. We then stress the importance of "netting" within the OTC derivative contracts. Our methodology shows that, even using data from before the worsening of the crisis in late Summer 2008, the potential cascade effects could be very substantial. We summarize our results in the context of the stability of the banking system and provide some policy measures that could be usefully considered by the regulators in their discussions of current issues.
Regulation of the Over-the-counter Derivatives Market by United States. Congress. House. Committee on Agriculture. Subcommittee on Risk Management and Specialty Crops Pdf
The Effective Regulation of the Over-the-counter Derivatives Market by United States. Congress. House. Committee on Financial Services. Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises Pdf
Over-the-Counter Derivatives Regulation in Hong Kong and Singapore by Christopher Chen Pdf
In this work, Christopher Chen examines and compares the regulation of over-the-counter derivatives in Hong Kong and Singapore regarding the reporting, clearing and trading mandates for regulating OTC derivatives in relation to developments in the US and Europe.
Post-Trade Processing of OTC Derivatives by Olga Lewandowska Pdf
The financial crisis of 2007–2009 exposed the weaknesses of the global over-the-counter (OTC) derivatives market such as limited transparency regarding risk exposures, poor counterparty risk management practices, and the risk of contagion arising from interconnectedness in this market. In the aftermath of the financial crisis, regulators introduced worldwide legislative and regulatory changes aimed at increasing the transparency and stability of the financial markets. In this book, Dr. Olga Lewandowska explores those novel regulatory solutions and their impact. The main focus is on central counterparty (CCP) clearing that became mandatory for OTC derivatives under the new regulatory paradigm. In four research papers, she analyzes CCP from different risk perspectives and based on four diverse research methods. Her book offers a comprehensive assessment of the risk-reduction potential of the CCPs, their implications for the financial markets, and the practical challenges in the implementation of the recent financial market reforms.
Velocity of Pledged Collateral by Mr.Manmohan Singh Pdf
Large banks and dealers use and reuse collateral pledged by nonbanks, which helps lubricate the global financial system. The supply of collateral arises from specific investment strategies in the asset management complex, with the primary providers being hedge funds, pension funds, insurers, official sector accounts, money markets and others. Post-Lehman, there has been a significant decline in the source collateral for the large dealers that specialize in intermediating pledgeable collateral. Since collateral can be reused, the overall effect (i.e., reduced ?source' of collateral times the velocity of collateral) may have been a $4-5 trillion reduction in collateral. This decline in financial lubrication likely has impact on the conduct of global monetary policy. And recent regulations aimed at financial stability, focusing on building equity and reducing leverage at large banks/dealers, may also reduce financial lubrication in the nonbank/bank nexus.
Fundamentals Of Institutional Asset Management by Frank J Fabozzi,Francesco A Fabozzi Pdf
This book provides the fundamentals of asset management. It takes a practical perspective in describing asset management. Besides the theoretical aspects of investment management, it provides in-depth insights into the actual implementation issues associated with investment strategies. The 19 chapters combine theory and practice based on the experience of the authors in the asset management industry. The book starts off with describing the key activities involved in asset management and the various forms of risk in managing a portfolio. There is then coverage of the different asset classes (common stock, bonds, and alternative assets), collective investment vehicles, financial derivatives, common stock analysis and valuation, bond analytics, equity beta strategies (including smart beta), equity alpha strategies (including quantitative/systematic strategies), bond indexing and active bond portfolio strategies, and multi-asset strategies. The methods of using financial derivatives (equity derivatives, interest rate derivatives, and credit derivatives) in managing the risks of a portfolio are clearly explained and illustrated.