Today's Post

    Clearing Obligation: ESMA Releases CP Comments The clearing-for-everything parade continues. Christopher Faille reviews three representative comments among those just released by ESMA, elicited by its consultation paper on the new clearing obligation for interest-rate swaps.

    The European Securities and Markets Authority has released the responses it has received to its first consultation paper on clearing obligation, specifically, the obligation to clear interest-rate swaps (IRS). It posted this CP on July 11th, and allowed comments until August 18th. Here’s a link. I’ll just offer three quick points from the consultation paper as preface for the comments. ESMA classifies IRS’ thus: basis swaps; fixed-to-float swaps; forward rate agreements; overnight index swaps; options. It sees some difficulty in any effort to “establish a link between the activity of a fund and those described in the hedging definition, therefore [alternative investment funds] falling under the [non-financial counterparty] category should qualify their OTC trading as ‘non-hedging.’” Further, the CP includes a timetable for the mandate for central clearing, and offers Topic 4.1, an “analysis of the criteria relevant for the determination of the dates” as warrant for this table. The phase-in works on the basis of the different types of counterparties involved in a swap. MFA’s Observation The Managed Funds Association, given its global nature, ...

Featured Post

One Ordinary Week in the Life of Climate Change

We thought it would be instructive to share with you links and the odd quote from recent press reports on the subject of climate change.  As a professional investor,  you no doubt want to be ahead of trends in the investment world.   Investment opportunities arise when there is a divergence of opinion, as is uniquely the case in the United States (unlike the other nations on Earth) on the subject of climate change.  The headlines of a few days tell ...

China’s Oil Giant At Center Of Corruption Probe

Oilprice.com's Ky Krauthamer looks at corruption in China's oil industry.

By Ky Krauthamer Grins were on the faces of China National Petroleum executives this week as they celebrated a blockbuster 30-year deal for Russian gas. It was a good day for CNPC, the state-owned colossus at the center of China’s oil and gas webs and one of Eurasia’s biggest energy investors. For some, however, those grins could soon turn to grimaces, because the deal comes against a backdrop of a series of high profile corruption investigations by the state, and CNPC has ...

Guest Posts

The Skorina Report is Surfing the Age of Asset Management: Will the tide of global AUM lift all asset-management boats?
Charles Skorina looks at the future of CIOs and with rising AUM and sees a forecast calling for sunny and bright. Maybe it's finally time to break out the shades!

By Charles Skorina The future looks bright for investment-management professionals as global assets under management surge from the current estimated $87 trillion dollars to a projected $400 trillion in 2050. Andrew G. Haldane of the Bank of England recently declared that global assets under management presently stand at about $87 trillion and says they'll rise 15 percent to $100 trillion by 2020, just five years from now. Looking farther out, Mr. Haldane foresees global AUM quadrupling to $400 trillion by 2050, boosted by ...


BIS to US Fed: You’re Messing with the World
There are several channels for spill-over effects, whereby the actions of the Federal Reserve and the ECB can have grave consequences around the world. Psychological consequence, in particular herding, is among them.

The Bank for International Settlements, the services and coordinating body for central banks, has taken a politely-worded crack at what it calls “unconventional monetary policies” of the Fed and the European Central Bank – mostly the Fed – in a new paper. BIS Paper #78, by Madhusudan Mohanty, contends that the “highly accommodative monetary policies in the major advanced economies” are wreaking havoc among the emerging markets. Lowering the exchange rates in the U.S. and Europe as far as the respective central banks have, while allowing exchange rates to float, has ...

Hard metals

Death of the Dollar: Consequences Worldwide
Rickards' new book expands on some of the themes of his 2011 publication, Currency Wars. The new book is, specifically, about the end of a particular phase in the history of money, the reserve significance of the U.S. dollar.

The Death of Money The Coming Collapse of the International Monetary System By James Rickards 368 pages Portfolio Penguin Money is a very useful thing. So useful, in fact, that the notion that it can “die” strikes some of us as inherently implausible. Its demise would leave us, after all, with barter and that system’s much-discussed difficulties. The phrase “The Death of Money” is close kin to “The Death of Breathing” or even “The Death of Mortality”! Some things are just baked in to the human condition. So when I heard that James Rickards’ new book ...


Responding to a Challenging Tweet about Front-Running
What do I mean by "front run," asked a reader. I use the term for a range of situations in which one party trades on the basis of advance [non-public] information of another party's upcoming trade, Faille replies.

After an earlier post of mine here about high-frequency traders and the Securities Information Processor, I received a tweet from @LiquidMkt. Actually, I received two. LiquidMkt, a blogger who believes that HF traders are on the receiving end of inaccurate charges,credits them with valuable work providing the markets with liquidity. The first of his tweets to me said, “Read your blog, but it leaves out some relevant info. Have you checked this out?” and then linked to this discussion of the legality of direct feeds. I have never contended that direct feeds ...

Risk management

How Not to Nationalize the Clearinghouses
Let's not make clearinghouses too big to fail. Or if, through, Dodd-Frank, we already have, let's turn back and reconsider that decision. That's how not to end up bailing them out or nationalizing them in due course.

Everybody loves the idea of the central clearing of derivatives. It’s like motherhood, transparency, and honest dealing. The most widely touted take-away from the crisis of 2007-08 is that “central counter-parties strengthen the safety and integrity of financial markets,” as Eurex Clearing put it this summer. This contention raises an obvious question, as regular readers of this blog will recognize: Won’t the central clearing parties themselves at some point (probably not too far distant) come under stress? And when that crisis comes, won’t they be deemed too big to fail? What ...


A Brief History of the Direct Borrowing Power of the U.S. Treasury
The Federal Reserve practice of the direct purchase of bonds from the U.S. treasury has a fascinating history. Though there have been no direct purchases since 1981, the idea surely is not forgotten. Is indirect purchasing simply a better way for the sovereign and central bankers to assist their cronies?

A new staff report prepared for the Federal Reserve Bank of New York discusses the prospect of the direct purchase of U.S. Treasury securities by the Federal Reserve banks. The customary way in which the Fed goes about expanding the money supply (or “easing” it “quantitatively,” if you prefer) is through the purchase of bonds from private parties in the market. This has been the case consistently since 1981, yet some have questioned the wisdom of ...

Performance, Analytics & Metrics

Eurekahedge: Europe-Focused Managers Took Hits in July
Banco Espirito Santo, and its CEO Salgado, had emerged from an earlier round of crisis (way back in 2012) with a roseate smell. Their latest smell ... not so good.

The independent data provider Eurekahedge tells us in its latest report that European and North American oriented hedge funds both lost money in July. In the case of the North American managers, as the graph here shows, that was a reversal of a positive showing in June: for Europe, the fall was more severe and came after a flat June. The nearly 1% decline in the Eurekahedge European Hedge Fund Index comes as a consequence, the ...

Venture capital

Preqin on PE Distributions & Call-Ups in 2013
The 2013 performance of the private equity industry, given any of several metrics, was quite strong. Why? In part because the exit environment has been very good.

Capital distributions to private-equity investors reached a record level in2013, according to research by Preqin, the multi-national data and consulting firm. They reached $568 billion, compared to just two-thirds of that (that is, $381 billion) in 2012. Another of the metrics key to Preqin’s research is the relationship of cap distributions to cap calls – that is, money drawn upon by managers from investors’ commitments. Cap calls have exceeded cap disbursements for most of the years ...

Hedge Fund Industry Trends

Hedge Fund Branding Continues to Drive a Majority Of Asset Flows
Guest columnist Don Steinbrugge looks at why the same hedge fund firms consistently bring in the assets.

Since the market correction of 2008, a vast majority of hedge fund net asset flows have gone to a small minority of hedge funds with the strongest brands, marking a change from the pre-2008 environment. A brand is an investor’s perception of the overall quality of a hedge fund based on multiple evaluation factors that evolve over time. A high-quality brand takes a long time to develop, but once achieved, it significantly enhances a firm’s ...