House-sharing is common in major cities around the world. Trapped at home because of the coronavirus pandemic, housemates are jostling for space and privacy. For those in the financial industry, their home office setup is not merely a source of domestic tension. It’s an operational risk for their employer.

“There’s a flat in London shared by four 25-year-olds. Three of them are traders for big banks, trading broadly the same instruments in the same room,” says Paul Ford, chief executive officer

Eurex is seeking a clearing licence from Hong Kong’s regulator – a move which would allow the European futures giant to onboard local entities for futures and swaps clearing directly.

Recognition as a designated central counterparty from the Securities and Futures Commission in Hong Kong is a privilege currently enjoyed by rival clearers LCH, CME Group and JSCC, as well as Hong Kong Exchange. At present, Hong Kong firms can only clear directly at Eurex through a foreign subsidiary or via a

COMMENTARY: The wave of fraud

Disasters of all kinds loosen the ties of society – and while this can lead to impressive outpourings of volunteer help, it can also open up opportunities for wrongdoing. (For all the memories of the Blitz Spirit in the UK, for example, crime in the UK soared 57% during the Second World War.)

The same is true of financial disaster, and the coronavirus pandemic is a financial and economic disaster as well as a human tragedy. A wave of financial crime, in particular fraud, has not yet shown up in the tables of op risk loss data, but it will. Motive and opportunity drive crime, and both have expanded as a result of the pandemic.

The systems intended to stop internal and external fraud have improved dramatically since the 2008 financial crisis, with artificial intelligence and machine learning technology now in widespread use. But the data on which these systems were trained has now, suddenly, become obsolete, compliance...

Canada’s largest clearing house has been forced to back away from a bid to force its clearing members to make a large, ad hoc top-up to their margin account balances. The central counterparty had argued the move was necessary as a blanket buffer against volatile markets; members protested fiercely that the move was procyclical, and flew in the face of the defaulter-pays logic by which central counterparties ought to be run.

CCPs around the world have been forced to hike margins across product

Banks are reporting a sharp rise in cases of internal and external fraud perpetrated during the coronavirus pandemic – and with typical patterns of behaviour among retail and corporate clients turned on their respective heads, detection systems that rely on past patterns of behaviour to make predictions are struggling to cope.

In ordinary times, machine learning technology can dramatically improve fraud detection rates by spotting transactions that look atypical of observed customer behaviour

Diverging approaches to the impact of coronavirus by credit rating agencies and fixed income index providers are setting up a potential wave of forced selling at the end of April, with passive funds most at risk from steep falls in the prices of corporate bonds.

As the pandemic brings entire industries to a near-standstill, rating agencies say they cannot ignore its implications for many companies’ prospects and must go ahead with downgrades, even if the crisis may prove short-lived.

“We can't

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As governments worldwide focus on the coronavirus (Covid?19) pandemic amid plummeting demand for fossil fuels, it may seem climate change has dropped down the global agenda. 

The long-term impact of Covid?19 on green investment and climate movement is unclear, but it is widely thought that low oil prices and economic recession will slow the transition to the low-carbon economy. 

And, still reeling from the economic crisis caused by Covid-19, regulators and central banks will be at pains to avoid another systemic financial meltdown due to the transition to a low-carbon world. The onus will once again be on individual firms to assess and mitigate their own risk exposures. 

It’s no easy feat. But firms that don’t assess the climate risk in their portfolios, or hedge or divest their exposures accordingly, could see some of their assets lose significant value over...

Banks’ back-office margin systems buckled under the sheer weight of trading volumes seen during the coronavirus market rout, resulting in missed margin payments and give-up trades being left on the books of executing brokers.

A combination of processing backlogs and manual errors meant some clearing brokers were left with uncollateralised overnight exposure to buy-side clients, while others had to meet surprise margin calls at a time of funding stress.

Five sources cited problems with systems

RBS has shut its client clearing and execution business for futures and options trading, leaving around 150 clients scrambling to find alternative arrangements in as little as three months.

The business, which was part of NatWest Markets’ currencies unit, was relatively small for the bank. It is said to have generated some £25 million ($30.9 million) in revenues for the UK state-backed lender last year.

NatWest Markets relationship managers learned of the decision last week, and clients have

Covid-19 disruptions expose Libor loan fallback flaws

Amending legacy loans during a crisis will prove challenging, ARRC member warns

FCA sizes up alt data for insider trading, irking funds

UK regulator examines new data sources’ potential to confer unfair market advantage

Seeing red over blue-chip swap in Argentina’s NDF fiasco

Emta protocol salve aside, peso settlement rate snafu is a warning for emerging market FX derivatives

COMMENTARY: Who’s an insider?

The law exists, at least in part, to stop the powerful from profiting unfairly from their power – hence insider trading laws. That’s why news of US senators trading on classified information about the true state of the Covid-19 pandemic – while publicly insisting that everything was fine – produced such public anger last week.

But the UK’s Financial Conduct Authority (FCA) is now pushing to extend the term ‘insider trading’ to cover the burgeoning...

Asia’s largest clearing houses had to hike margins dramatically during the March coronavirus equities rout, forcing clearing members to meet large intraday margin top-up calls – and vindicating long-held concerns that bourses compete on margin on benchmark contracts, dealers say.

As Risk.net reported in January, the Japan Securities Clearing Corporation (JSCC) is overhauling its margin framework, which will have the cumulative effect of raising initial margins. But with the changes set to take

ABN Amro, which announced a $200 million loss in its clearing business earlier today (March 26), is closing out a separate portfolio of trades it cleared for Ronin Capital, the Chicago-based proprietary trading firm that collapsed last week after failing to meet margin calls at CME.

Two sources close to the matter tell Risk.net that ABN Amro cleared Ronin’s trades at the Options Clearing Corporation (OCC). One source told Risk.net earlier this week that those trades were now in “controlled wind

Credit risk models are buckling under the strain of coronavirus, and banks are scrambling to fix or replace them. The models, which help lenders compute parameters such as probability of default (PD) and loss given default (LGD), lose their predictive power when faced with the kind of unique economic circumstances that are buffeting markets and companies during the pandemic crisis.

In the absence of credible inputs for standard models, banks are getting creative. They’re repurposing methods

A growing number of corporate treasurers are hoping their foreign exchange hedges will also help make them cleaner and greener – by giving them a better rate if they hit environmental targets and whacking them with a penalty if they don’t.

In the last seven months, wind-turbine company Siemens Gamesa has executed its first FX trade linked to environmental, social and governance (ESG) factors, as has Italian energy giant Enel. A third large corporate in the energy sector tells sister site FX

Extreme dislocations in US short-term funding markets have exposed cracks in core interest rate benchmarks – both old and new – raising new questions over whether Libor and its intended successor, the secured overnight financing rate (SOFR), are appropriate measures for lending markets.

As concerns over the economic impact of the coronavirus raged through the financial system, a “cash crunch” for US dollars jolted funding markets, sending interest rate benchmarks out of whack.

Three-month

Years from now – and for decades to come – the world will remember ‘the great pandemic of 2020’. The coronavirus’s effects on financial markets and companies are already acute: widespread disruption to business practices and everyday life has caused major indexes to shed up to one-third of their value, and forced governments to enact crisis measures to cope.

From a risk assessment perspective, reaction to this pandemic converges into a strange combination of under- and overestimation. Pandemic

Top lenders in the eurozone have been given the green light by the European Central Bank to release capital buffers in a bid to fight the economic fallout from the spread of the novel coronavirus. 

The central bank said 117 directly supervised firms, known as significant institutions (SIs), would be permitted to “operate temporarily below the level of capital defined by the Pillar 2 Guidance (P2G), the capital conservation buffer (CCB) and the liquidity coverage ratio (LCR)”. The regulator also

COMMENTARY: The regulators’ week

Central governments didn’t exactly cover themselves in glory last week – the Russian and Saudi governments kicked off by embarking on an oil price war that crashed markets around the world, and sudden switches in policy in the UK and an unsettling and error-filled presidential address in the US did little to reassure the world later in the week.

This week, by contrast, the authorities have been digging in. Central banks’ massive interventions in the bond markets have grabbed the headlines, but there are other areas too where central banks and regulators are acting to ease avoidable strain on the industry.

Capital buffers intended to cushion the impact of a sudden slowdown are being released in six countries – and the US Federal Reserve is encouraging the systemically-important banks it oversees to deploy up to $156bn of capital from their own buffers (though its own rules on calculating stress capital buffers are causing...

Ask a clearing member in Hong Kong or Singapore to name their biggest worry, and you might be surprised at the answer. Investment risk is starting to outweigh more headline-grabbing perils such as member defaults and central counterparty blow-ups, as CCPs face growing scrutiny over how they manage clearing participants’ cash.

Members say a confluence of factors – mainly a lack of access to deposit accounts at central banks and underdeveloped repo markets in key Asian jurisdictions – are curbing

COMMENTARY: Good timing

Three stories this week underline, in various ways, the importance of keeping different countries’ financial regulations not only in line, but in step.

Regulators in the European Union and the US have chosen different implementation dates for the standardised approach to counterparty credit risk (SA-CCR). As a result, EU banks are more than a year behind their US rivals on SA-CCR, leaving them aggrieved at the thought of up to 15 months without the capital advantages that the transition to SA-CCR promises.

The US Federal Reserve’s introduction of new bank prudential rules – a tiered regime known as the tailoring rule – has hit problems as well. One of the key indicators wasn’t ready in time when the rule came into force last month, and now some foreign banks may have to revise their calculations twice this year.

And UK investment firms are facing a new outbreak of uncertainty relating to Brexit. The country has now...

Banks in Singapore are building inventories of machine learning-based (ML) models in a bid to shore up internal governance of the technology’s use cases. The initiatives are partly a response to regulatory expectations around banks’ use of models that take advantage of such techniques, especially where they have the potential to impact customers.

“There is a need to create a central inventory of AI [artificial intelligence] and machine learning models, so we can know the full set of models that

The robustness of credit portfolio models is of great interest for financial institutions and regulators, since misspecified models translate into insufficient capital buffers and a crisis-prone financial system. In this paper, the authors propose a method to enhance credit portfolio models based on the model of Merton by incorporating contagion effects. While, in most models, the risks related to financial interconnectedness are neglected, the authors use Bayesian network methods to uncover the direct and indirect relationships between credits while maintaining the convenient representation of factor models. A range of techniques to learn the structure and parameters of financial networks from real credit default swaps data are studied and evaluated. Their approach is demonstrated in detail in a stylized portfolio, and the impact on standard risk metrics is estimated.