The document discusses the impact of regulation on collateral markets. It notes there is significant ongoing regulatory activity around collateral, collateral management, and availability. New regulations like Dodd-Frank and EMIR are incentivizing the movement of over-the-counter derivatives contracts to central clearinghouses. This will significantly increase collateral requirements for both cleared and uncleared swaps. Firms will need to acquire or transform assets to meet these new margin requirements. There is uncertainty around how much additional collateral will be required and whether there is a current shortfall.
A report to (a) critically explores the role played by both individuals and organizations in the LIBOR scandal fraud, taking into account the wider socio-cultural context, (b)Recommendations provided to organizations to prevent future scandals similar to the LIBOR.
In writing your report range of academic sources, newspaper coverage, analyst reports, and other relevant sources have been kept together to illustrate the arguments.
The main body of the report offers a coherent, well-focused, pervasive and original argument that is relevant to the targeted audience, providing appropriate support and justification.
The conclusion will provide a good analysis of the evidence with clear and well-justified conclusions
This presentation is pledged to explain the London interbank offered rate scandal (LIBOR) that came to light in 2012 after one of its main offenders; the Barclays bank accepted about the manipulation of the interest rate. This scam was conducted due to the unethical practices by top executives, traders and employees. LIBOR manipulation was the result of unethical approach of top management and traders. London Interbank offered rate (LIBOR) is the largest financial scandal of all time.
A report to (a) critically explores the role played by both individuals and organizations in the LIBOR scandal fraud, taking into account the wider socio-cultural context, (b)Recommendations provided to organizations to prevent future scandals similar to the LIBOR.
In writing your report range of academic sources, newspaper coverage, analyst reports, and other relevant sources have been kept together to illustrate the arguments.
The main body of the report offers a coherent, well-focused, pervasive and original argument that is relevant to the targeted audience, providing appropriate support and justification.
The conclusion will provide a good analysis of the evidence with clear and well-justified conclusions
This presentation is pledged to explain the London interbank offered rate scandal (LIBOR) that came to light in 2012 after one of its main offenders; the Barclays bank accepted about the manipulation of the interest rate. This scam was conducted due to the unethical practices by top executives, traders and employees. LIBOR manipulation was the result of unethical approach of top management and traders. London Interbank offered rate (LIBOR) is the largest financial scandal of all time.
European Additional Tier 1 CoCo Bonds MarketLisa Saldana
The European Additional Tier 1 CoCo bond market for securities which can count as part of banks’ tier 1 regulatory capital has developed with increasing acceptance of their unique risk-reward proposition.
Additional Tier 1 CoCo bonds convert to equity or can be written-down in downside scenarios such as capital erosion or a regulatory judgement on the non-viability of the bank. These bonds were developed – with regulatory encouragement – as a response to the financial crisis to reduce the likelihood of unpopular state support for failing banks by creating a new type of bond which can be written-off to absorb losses.
As LIBOR is slowly being phased out universally, SONIA is the go to near risk-free rate. Read more about the challenges and responses required to make a smooth transition by December 2021.
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These slides cover the timing of LIBOR's cessation, mitigation efforts undertaken by federal regulatory agencies and industry groups and the steps that borrowers and lenders should take now to ensure a smooth transition to an alternative benchmark rate.
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A presentation from early fall about changes in the Libor and the Fed Funds Rate. We discuss the relationship between the two rates. * Leave a comment if you download, please! *
Cormac Leech: A Banking Analyst's Perspective on P2P
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LIBOR serves as a benchmark that gives an indication of the rate at which banks can borrow from London interbank market for a given period of time.
Here is a presentation which will help you to understand the term 'LIBOR'.
European Additional Tier 1 CoCo Bonds MarketLisa Saldana
The European Additional Tier 1 CoCo bond market for securities which can count as part of banks’ tier 1 regulatory capital has developed with increasing acceptance of their unique risk-reward proposition.
Additional Tier 1 CoCo bonds convert to equity or can be written-down in downside scenarios such as capital erosion or a regulatory judgement on the non-viability of the bank. These bonds were developed – with regulatory encouragement – as a response to the financial crisis to reduce the likelihood of unpopular state support for failing banks by creating a new type of bond which can be written-off to absorb losses.
As LIBOR is slowly being phased out universally, SONIA is the go to near risk-free rate. Read more about the challenges and responses required to make a smooth transition by December 2021.
THE PHASE-OUT OF LIBOR: Timeline, State of Play and the Path ForwardToniBianco
These slides cover the timing of LIBOR's cessation, mitigation efforts undertaken by federal regulatory agencies and industry groups and the steps that borrowers and lenders should take now to ensure a smooth transition to an alternative benchmark rate.
DeFi's dependency on the U.S. banking systemTim Swanson
First presented on June 22, 2021 at SORA Economic Forum. Discusses collateral-backed "stablecoins" that rely on the U.S. financial system. See also Daistats.com for up-to-date charts.
A presentation from early fall about changes in the Libor and the Fed Funds Rate. We discuss the relationship between the two rates. * Leave a comment if you download, please! *
Cormac Leech: A Banking Analyst's Perspective on P2P
Keynote address by Cormac Leech, of Liberum, at LendIt Europe 2014. The title of this presentation is A Banking Analyst's Perspective on P2P.
LIBOR serves as a benchmark that gives an indication of the rate at which banks can borrow from London interbank market for a given period of time.
Here is a presentation which will help you to understand the term 'LIBOR'.
Conversation with Matthew Lynes, Aberdeen Asset Management. Buy-Side System Requirements - Whitepaper by Quantifi and OTC Partners. The Cost of Collateral - Webinar Survey.
The July 2015 Insight newsletter, discussing the changing regulatory landscape and including a conversation with Matthew Lynes, Senior Investment Manager at Aberdeen Asset Management
By 1st December 2015, BCBS-IOSCO rules mean that all eligible financial and non-financial counterparties must be able to exchange bilateral Variation Margin (VM) and Initial Margin (IM) with their OTC derivatives counterparties. The consequences of this extend far beyond methodology, requiring a re-evaluation of the whole end to end workflow.
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Leveling the Playing Field in Liquidity Management & Solutions for Participat...Erkan Kilimci
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CVA Capital Charge under Basel III standardized approachGRATeam
Since the 2007 – 2009, Counterparty Credit Risk (CCR) has become one of the biggest issues and challenges for financial institutions.
As the crisis revealed shortcomings and loopholes in managing CCR, and more specifically CVA risk, new regulations have been issued in the sole intent of capturing this risk and building an extra cushion of capital to absorb losses and consequently to strengthen the resilience of the banking industry.
Basel III framework proposes two ways for measuring CVA Risk: a standardized approach and an advanced approach.
In this paper, the standardized approach will be analyzed and studied. At first, an analysis will be provided to better understand why CCR became so important, what are its characteristics, etc... Then a discussion around the CVA definition from the regulator’s perspective will be presented. Finally, a paragraph will be dedicated to better understand what the standardized formula refers to, what is being computed, and for what purpose.
Our decision to focus on the treatment of counterparty risk in Basel III - standard method only - can be explained by three major observations:
1) A lot of literature already exists, and a certain number of very good specialists refer to the subject. We do not pretend to add other new elements, in all cases not herein;
2) Few banks actually are able to assess their counter party risk under some advanced and internal methodologies. The application of the standard method is highly widespread among financial institutions subject to Basel III;
3) Few people, when they need to assess their risk using the standard approach, really take the time to analyze choices and specific assumptions according to this method.
Our main objective here is to help financial institutions better understand how their regulatory capital levels evolve under this approach and the impact on their day to day business.
Matt Simon, senior analyst at TABB Group, and Azila Abdul Aziz, executive director of dealing from Kenanga Deutsche Futures, present the foundation for better understanding of trading into Malaysia.
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As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
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Implicitly or explicitly all competing businesses employ a strategy to select a mix
of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
(i.e., industry structure in the language of economics).
"𝑩𝑬𝑮𝑼𝑵 𝑾𝑰𝑻𝑯 𝑻𝑱 𝑰𝑺 𝑯𝑨𝑳𝑭 𝑫𝑶𝑵𝑬"
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𝐓𝐉 𝐂𝐨𝐦𝐬 provides unlimited package services including such as Event organizing, Event planning, Event production, Manpower, PR marketing, Design 2D/3D, VIP protocols, Interpreter agency, etc.
Sports events - Golf competitions/billiards competitions/company sports events: dynamic and challenging
⭐ 𝐅𝐞𝐚𝐭𝐮𝐫𝐞𝐝 𝐩𝐫𝐨𝐣𝐞𝐜𝐭𝐬:
➢ 2024 BAEKHYUN [Lonsdaleite] IN HO CHI MINH
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➢ Korean Vietnam Partnership - Fair with LG
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"𝐄𝐯𝐞𝐫𝐲 𝐞𝐯𝐞𝐧𝐭 𝐢𝐬 𝐚 𝐬𝐭𝐨𝐫𝐲, 𝐚 𝐬𝐩𝐞𝐜𝐢𝐚𝐥 𝐣𝐨𝐮𝐫𝐧𝐞𝐲. 𝐖𝐞 𝐚𝐥𝐰𝐚𝐲𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞 𝐭𝐡𝐚𝐭 𝐬𝐡𝐨𝐫𝐭𝐥𝐲 𝐲𝐨𝐮 𝐰𝐢𝐥𝐥 𝐛𝐞 𝐚 𝐩𝐚𝐫𝐭 𝐨𝐟 𝐨𝐮𝐫 𝐬𝐭𝐨𝐫𝐢𝐞𝐬."
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1. 2013 SIFMA Collateral Conference | May 2013
THE IMPACT OF REGULATION ON
THE COLLATERAL MARKETS
OVERVIEW
2. 2
Quick Comments on Collateral & Collateral Markets
Collateral is the topic of the hour. . . And is not going
anywhere soon.
There is a great deal of activity currently going on around the
topics of collateral, collateral management and collateral
availability, including:
The initiation of Category 2 Clearing
Bloomberg LP v. Commodity Futures Trading Commission, 13-cv-
00523, U.S. District Court, District of Columbia
It is not over until its over. . .
3. The central clearing carrot and stick
3
Mandate Regulator Jurisdiction Requirement
Dodd Frank
Title VII;
Rule 731
EMIR
Rule 103
BASEL III
CFTC
SEC
ESMA
BASEL Committee on
Banking Supervision
USA (w/global
implicaitons)
Europe (w/global
implications)
Global
o Clearing of swaps through CCP’s (w/ available)
o Collateral Requirements for both OTC & Bilateral swaps
o 5 & 10 IM for cleared & un-cleared swaps; w/daily mark
to market VM requirements
o Similar in nature to Dodd Frank
o Cover’s OTC clearing, collateral, segregation, CCP’s,
interoperability, etc.
o Strengthens banking capital requirements for
counterparty credit exposure arising from derivatives,
repo’s & securities financial transactions
o Incentives movement of OTCD contracts to CCP’s
Source: TABB Group
4. Source: LCH.Clearnet
How is margin calculated?
Initial Margin – PAIRS
Designed to cover worse-case
losses based on historical
scenarios from the past five years
(1250 scenarios)
Represents the amount required to
close out a full portfolio without loss
Based on 5 day holding period for
members and 7-day holding period
for clients (the period required for
transfer or close-out in the event of
a default)
Calculated on a Portfolio basis,
using a filtered historical value at
risk (VAR) method
Back tested against a 99.7%
confidence interval
Variation Margin
Represents the current value of the
portfolio
Net Present Value derived intraday;
based on market standard
valuation techniques
Currency portfolios revalued
according to the LCH.Clearnet yield
curve
Margin charged/paid out in the
currency of obligation
Price Alignment Interest (PAI)
applied/charged to Variation Margin
Balance
Portfolio valuations using OIS
discounting for 6 major currencies
Please note that the above description is being provided to you for informational purposes only and is intended only as a broad overview of
certain aspects of SwapClear, a service of LCH.Clearnet Limited. The above does not, and does not purport to, contain a detailed description
of any of the topics discussed and has not been prepared for any specific audience. Accordingly, you may not rely upon the above
description and should seek your own independent legal advice.
6. 6
Acceptable Forms of Collateral for CCP’s.
Product CME ICE
LCH
Clearnet
Cash X X X
Government Securities X X X
Government Sponsored Enterprise / Government
Agency Securities (i.e. FNMA, GNMA, FHLMC) X X
Corporate Bonds X
Equities X
Performance Bonds / Letter of Credit X X
Money Market Fund Shares X
Precious Metals (Bold Bullion * X X X
7. 7
In the end, collateral is about risk, and the tail risk
of some of these products can be long lasting
Source: TABB Group, DTCC
8. 665 668 1,063
1,979 1,576 1,476 1,340
1,235 1,368
2,193
2,576
1,944 2,004 2,572
2005 2006 2007 2008 2009 2010 2011
US$Billions
OTCD Margin Requirement
Current Req. ($ BB)
+ Collateral ($ BB)
Current Margin (Single Counted) Additional Margin Requirement
3,256
1,900 2,036
4,555
3,520
2,572
3,480
3,912
Source: BIS, ISDA ,WFE, TABB Group
Targeting OTCD Collateral
Requirements
Comparison of the ETD
and GCE Margin Benchmarks
Our initial ’11 estimate of $1.6 trillion is now ~$2.6 trillion
How big is the collateral shortfall?
1,900 2,036
3,256
4,555
3,520
3,480
3,912
1,545
2,014
3,508
4,699
3,776
2005 2006 2007 2008 2009 2010 2011
US$Billions
2011201020092008200720062005
2011201020092008200720062005
GCE Margin Benchmark1
ETD Margin Benchmark2
Note 1: GCE – gross credit exposure
Note 2: ETD – exchange traded derivatives
10. 10
Asset Class
Initial Margin Requirement (% of
notional exposure)
Credit: 0-2 year duration 2
Credit: 2-5 year duration 5
Credit 5+ year duration 10
Commodity 15
Equity 15
Foreign ExchangeCurrency 6
Interest Rate: 0-2 year duration 1
Interest Rate: 2-5 year duration 2
Interest Rate: 5+ year duration 4
Other 15
Source: BCBS/IOSCO
What will be the margin requirements for
uncleared trades?
11. Cleared (Multi-Asset)
Swaps*
Overnight Index Swap (OIS)*
Basis Swaps*
Forward Rate Agreements
(FRAs)*
* certain currencies / tenors
Credit Default Indices**
** certain baskets of CDS
Energy Related Swaps
Est. Notional Value (2011):
$261 trillion (40%)
Potentially Clearable
(Rates Only)***
Swaps:
Zero Coupon Swap
Quanto Swap
Vanilla Inflation Swap
X-Currency Swap
Swaptions:
European / American Swaption
Forward Swaption
Straddle
Strangle
Spread
Caps/Floors:
Vanilla Cap / Floor
Straddle, Collar, Strangle, Spread
*** certain currencies / tenors
Est. Notional Value (2011):
$254 trillion (39%)
Clearly Unclearable
(Rates Only)
Swaps:
Amortizing
Rollercoasters
Exotic Swaps
BMA, UF, UDI, IMM, LPI
Caps / Floors
Quantos
Digital / Digital Range
Knock-in / Knock-out
Constant Maturity Swaps (CMS)
Structured Products
Cancelable / Callable
Range Accrual
Inverse Floaters
Snowballs / Reverse Snowballs
Est. Notional Value (2011):
$133 trillion (21%)
What will be the impact of clearing and
collateral costs on product selection/extinction?
Source: TABB Group
12. Do you already hold enough collateral to post?
Yes
63%
No
37%
Acquire
38%
Transform
62%
What will you do to meet
collateral requirements?
Source: TABB Group, State Street
Based on interviews
with 34 Buy-side Firms
circa June 2012
Collateral Attitudes – Continued. . .
13. What is the difference between collateral
transformation and optimization? But . . .
13Source: TABB Group
15. If swaps become more expensive to trade, what other products will you use instead?
17%
8%
8%
33%
58%
TBAs/Repo/ETFs/
Bond Options
New Products
No Change
Cash
Futures
Based on interviews
with 31 Buy-side Firms
circa March 2012
The future of swaps
15
Source: TABB Group
16. Will the market move to futures?
16
Issue Advantage Goes to… Because…
Current Liquidity Swaps
Vanilla US IR Swaps have an annual notional turnover of $175 Trillion;
swap futures have nearly zero turnover
Future Liquidity Swap Futures
- Even if the swaps market remains vibrant, swap futures have the
potential to reach a much broader swath of the market
- Swaps liquidity will likely fragment across multiple SEFs
- Recent trends favor highly liquid, standardized instruments
Customization Swaps
Even cleared swaps will allow for greater customization than swap
futures. There is limited customization available on Eris contracts
Margin Efficiency Swap Futures
The minimum VaR calculation for futures contracts is 1 day, compared to
5 days for cleared swaps
Regulatory Status Swap Futures
Trading swap futures is a known regulatory and reporting framework that
will not require additional registration
Status Quo Swaps
If regulations prove less onerous than expected, then the swaps market
will likely continue largely as it is today
Source: CME, LCH, TABB Group
17. Conclusions / Takeaways
Things are never as bad, or as good, as you think they will
be – the cost of collateral will be high but no where near top
line estimates
Both DCOs and FCMs/clearing brokers are working on a
range of solutions to help investors find the least expensive
collateral to trade swaps
But there are unforseen consequences from OTC regulatory
reform
Bilateral margin requirements are an unknown
Independent amounts and potential collateral disputes
Variation margin under LSOC
The futurization trend could hurt swaps liquidity
17
18. Q & A
18
When the clearing mandate goes live in March, Derivatives Clearing Organizations (DCOs), Futures Commission
Merchants (FCMs) and clearing brokers must be able to accept trades for clearing within just one minute of
submission. The goal is to create a market in which clicking “execute” completes the trade entirely. A more
automated and real-time clearing workflow will allow the market to more accurately manage risk and, by doing
so, better deploy capital. But the path to this environment will require a technology investment by swaps
dealers, FCMs and the clearinghouses themselves
Real Time Clearing: The New Race to Zero
Author: Will Rhode
Relevant Recent Research from TABB Fixed Income
Death of a SEF – The Coroner’s Report
Author: Adam Sussman
Swap Execution Facilities (SEFs) have a problem: They have the same amount of regulatory burdens as
exchanges but control a narrower slice of the derivatives market, and they largely will depend on the survival of
the status quo. There are multiple scenarios in which the SEF is made obsolete. In contrast, Designated
Contract Markets (DCMs) benefit if the markets move to an exchange-like model and, at the same time, a DCM
can allow many of the existing swaps processes to survive under a futures model. This is the confidence trick of
Dodd-Frank..
This report builds on TABB’s initial Global Risk Transfer Market report, published in November 2010, exploring
the ongoing battle between the status quo and the transformation of the global derivatives market as well as
where various components of the market ecosystem are in their development and implementation cycles. The
report focuses on the primary issues in swaps today -- including clearing, margin, collateral, automated trading
solutions, trading costs, trade reporting and repositories, and extraterritoriality -- with an eye toward juxtaposing
them with exchange-traded derivatives markets.
The New Global Risk Transfer Model – Transformation and the Status Quo
Author: Paul Rowady
US Buy-Side Swaps Trading 2012: I Can See Clearing Now
Author: Will Rhode
This study is based on conversations with 31 buy-side firms, including asset managers, hedge funds, regional
banks and insurance companies. It looks at clearing behavior, dealer relationships, fees, accessing Swap
Execution Facilities (SEFs), central counterparty clearinghouse selection, alternative products, basis risk, and
changes in market structure resulting from regulation
Editor's Notes
TABB Group uses two benchmarks to generate the estimated overall margin that should be posted for global OTCDs: the global margin associated with exchange-traded derivatives (ETDs) and the gross credit exposure (GCE) of global OTCDs, as estimated by the BIS (see Exhibit 18). The ETD benchmark uses data from the CFTC and the Options Clearing Corporation (OCC) and comes in at about 0.6% of notional outstanding (or open interest). With greater than 90% correlation between the GCE and ETD benchmarks, we are confident that the GCE benchmark is sufficient for highlighting and benchmarking approximate levels of margin for all OTCDs. The only caveat here is that OTCDs will not achieve anything near the level of compression found in ETDs without significant shifts to more vanilla trade structures.