Under the Dodd-Frank Act, and the implementing rules now approved by the CFTC, trades that aren't "large notional swaps" are to be reported more rapidly and thoroughly than those that are. This of course makes the definition of a large notional swap (a/k/a a block trade) an important matter.
All entries by this author
Under standard portfolio theory assumptions, it takes three times longer to recover from the maximum draw-down for a particular strategy than it does to get there. Fortunately, those assumptions seem to be wrong in a way that allows for a more rapid return to a high water mark.
A new report by PrevInvest, the "Investment Outlook & Hedge Fund Strategies Insight Report," focuses on the consequences of the race to the bottom among the world's industrialized nations and their central banks, and the way this has created a lot of sloshing-around of liquidity looking for profitable channels.
The Federal Circuit's effort to address en banc the district court's rejection of the applicability of patent law to a fairly commonplace hedge against settlement risk seems to have broken down in confusion. This may have profound implications for both the traditional and the alternative asset management industry.
Facile parallels notwithstanding, neither the argument Druckenmiller made at Sohn nor any other good reasons that may now exist for shorting the Aussie have a lot to do with the case against the pound in 1992. That tug-of-war occurred in a unique context, not here replicated.
Shane Brett, of Global Perspectives, makes the point that the "non-European world" is in no position to ignore the implementation of AIFMD. Although the implementation will be gradual, by 2018 any manager from anywhere who wants to bring his road show to a European city will have to be fully compliant.
A new SEC proposal, promulgated May 1, would provide that Dodd-Frank requirements regarding swaps apply if a transaction is entered into by a U.S. person or conducted within the U.S. but that an entity operating outside the U.S. may be able to substitute foreign regulatory requirements for the U.S. requirements if the extraterritorial party's home system produces comparable regulatory outcomes.
Asness, Frazzini and Pedersen produce data indicating that over a long period in the U.S., a regular bet-against-beta strategy, one not designed either to accentuate or to eliminate differences among the different industries represented in the portfolio, earned CAPM alpha of 0.73.
Twelve ministries in the People's Republic of China, including the Ministry of Industry and Information Technology, have together released guidelines for accelerating M&A activity in key industries. this is one of the "bright spots" that may lighten up the future for the M&A world, though macro-economic realities in the U.S. and Europe are holding it back.
With a wide range of troubling issues on my mind, I recently consulted a sage of the trading-algorithm world, Greg Woods, the head of algorithmic execution, listed derivatives and foreign exchange for Deutsche Bank Securities. He has more than twenty years of experience in the broad IT area.
A portfolio becomes optimal by virtue not merely of what assets are in it, but by virtue of what is paid for each. Examining the implications of that point, Professor Johnstone finds a "logical circularity built into the CAPM equilibrium pricing mechanism."
Noah Smith, an assistant professor of finance at Stony Brook and a very sharp blogger (Noahpinion), expressed recently an insight on his blog worth whatever additional exposure I can give it here. This is especially so because the title Smith gives his blog entry, “KrugTron the Invincible” may be one that does Smith himself a disservice. [...]
Recent and ongoing transformations in the PE industry and its institutional contexts have created a demand for a more robust infrastructure: mid or back-office functions are the weight-bearing beams of PE firms.
A recent paper by the SEI in collaboration with ETF Trends explains that the share creation/redemption process sets up a feature of ETFs, and in particular of active ETFs, that constitutes a potential competitive disadvantage vis-à-vis mutual funds. The former, not the latter, are susceptible to front running.
Earlier scholarship, largely devoted to the U.S. equities context, has indicated that well-known predictors don't predict well in out-of-sample contexts. But by combining fifteen factors, and by moving the scene of their study to Australian, four scholars have obtained a more upbeat result.
Dark trading in Australia is becoming more multilateral and 'market-like' over time, a task force has found. That doesn't sound especially alarming, but ASIC believes the situation may encourage breaches of the Market Integrity Rules and the Corporations Act.
D.J. Johnstone of the University of Sydney Business School tells us that if we understand Bayesian probability theory, we'll see that even a very informative signal can bring an increase in uncertainty, thereby raising the cost of capital. This is at least a little bit counter-intuitive, offending the verities about how wonderful is transparency.
One take-away from David Stockman's new best selling book is that the phrase "hedge fund" may well be on its way beyond descriptive significance. In the public realm, a "hedge fund" is now as much a metaphor as is a "Trojan horse." It is becoming a metaphor for any institution's failure to hedge.
Part II of a new SEI report on hedge funds and adapting to survival.
Generalized considerations about equity and mean reversion have been institutionalized with the creation of glide path or "life-cycle" funds. but the authors of a new EDHEC paper contend that the glide paths defined by these funds don't represent the optimal approach to portfolio allocation.
All three classes of hedge fund outperformed the relevant index, Topix 1000, in the period since January 2004. Also, both broad based indexes and two of the HF indexes show a sharp uptick on the right hand edge of the graph, reflecting the ascension of Prime Minister Abe and the aggressive policies of the Bank of Japan.
A new paper in the Journal of Investment Management claims that five sophisticated high-profile institutions could have made better use of the PE portion of their portfolios over the period 1999 to 2010 had they applied the insights of the founder of modern portfolio theory, Harry Markowitz.
The great success of the Thatcher-era Big Bang was that it shocked the Square Mile out of insularity. The turnover and value of London-based equity transactions increased from roughly £500 million in 1986 to more than £2 billion nine years later.
One hundred eighty corporations completed a survey that focused on their giving -- their corporate community investment activity -- in 2011. One inference from the survey responses is that previous estimates of such giving have been low.
The respondents in the Commonfund survey have changed their view of the most pressing tail risks from last year to this. A year ago, 32 percent of the respondents saw an EU crisis as the most significant risk going forward. No longer.
“Few managers would be surprised,” SEI says, “that nearly one-third of the institutions queried in SEI’s 2012 survey reported making their due diligence processes more robust over the last two years.” The new robustness in the search for the nature and sustainability of the funds’ edge involves a new granularity, the questioning of specific investment decisions in the context of portfolio construction models.
IOSCO's new draft report says that regulators ought to do a lot of "monitoring" of the consequences of changes in market structure. A little less predictably: it goes into some detail on the diversity of regulatory systems that bear on the question of fragmentation.
What happened when a liquidator on the British Virgin Islands sought directions from the trial judge that he be permitted to make a priority distribution to redeemed members? To the surprise of many working in that legal/financial space, the trial judge refused. The liquidator's first instinct, though, has now received vindication on appeal.
In an odd-seeming juxtaposition, a decision issued by the U.S. District Court in Manhattan on March 29, one sharply limiting the private plaintiffs' lawsuit against the banks involved in the LIBOR scandal, relies upon a precedent set by the Supreme Court in 1977 involving ... bowling centers.
Though the charges against him are civil, not criminal, Mark Cuban may be the Amanda Knox of the jurisprudence of insider trading. He had reason to believe himself vindicated in July 2009, but now the SEC has successfully revived the matter and Cuban faces a trial.
Litigation before the Delaware Chancery Court, Kallick v. SandRidge, led to an opinion issued March 8 that addresses when a board of directors must approve a particular dissident slate for the purpose of avoiding a so-called “poison put.”
The benchmarking consultation paper from ESMA/EBA has produced intriguing responses from, among others, the International Swaps and Derivatives Association and the EDHEC-Risk Institute.
At the latest hearing in the NML matter, certain attorneys sounded like members of the bankruptcy bar, urging a practical approach to divvying up an estate's assets. In coming days, we'll see whether Argentina itself is willing to make a case in those terms.
As a three-judge panel of the D.C. Appeals Court saw it, there were two questions in the Brian Hunter case. First, did the CEA’s language encompass manipulation of NG futures contracts as part of the exclusive jurisdiction of intervener CFTC? Second, if so, was that repealed or modified by the 2005 legislation?
Ninety-one percent of the respondents to a recent survey strongly believed there was a breakdown in audit procedures in the futures world. The comments section for that question displayed what the survey sponsor, Horizon Cash Management, calls “widespread frustration and anger.”
The present global monetary situation, plainly, is not at equilibrium. Everybody else’s currencies depend upon the dollar, the dollar depends upon petroleum, and petroleum depends upon … whatever. Changes will continue (through a succession of crises if no other way can be developed) until a new equilibrium can be attained.
Last summer the CME Group's European clearing house for derivative products announced that unallocated gold would serve as collateral for margin cover. Was that the sort of illusory good news that marks the top of a trend or was that a symptom of a secular trend toward the de facto monetization of gold that will re-assert itself once the present cyclical down move is done?
Just as one buys bourbon from a retailer who buys it from a distributor who buys it from the manufacturer, so in the world of stocks someone desiring a share of Apple will call a broker who will often go through an exchange which matches him with the broker for a seller. But in a networked world, one can disintermediate.
In 2008 the U.S. Congress mandated a significant compliance upgrade for brokers and other financial intermediaries, in regard to their 1099-B income reporting obligations. Now new IRS releases recognize that discrepancies will exist between a taxpayer's records of securities transactions and those of the broker, and they attempt to adjust for that. But traps for the unwary remain.
A threatened divergence arises because the IASB proposes to distinguish between assets with a 12-month allowance balance and those with a lifetime expected loss balance. This is a 'two bucket' model, according to an update recently presented to the G-20, although for historical reasons it is still sometimes called the three-bucket model.
Collective investment schemes aren't banks. They aren't in the maturity transformation business. Furthermore, they don't want to stumble into that line of business accidentally, either.
The Germans seem prepared to experiment with limits on high-frequency trading, as we see in a recent Bundestag vote that leaves the particulars to BaFin. I spoke recently to David Weild, a former vice chairman of NASDAQ, about this experiment and about related issues.
A newly released paper concludes that the returns many mutual funds make from lending their portfolio securities increase as the directors on their boards become more independent. Separately, it is a good sign if the directors have, as the saying goes, 'skin in the game.'
Lehman's adversary proceeding may yet raise the important issues of risk management that arise out of the relationships among the major Wall Street players at times of crisis. But the latest 'Blame the whale' request by the bankruptcy lawyers involved is a blatant distraction and diversion.
This is the second of a two-part discussion of a paper jointly issued by Basel and IOSCO on margin requirements for non-centrally cleared derivatives. The new paper solicits feedback on the phase-in timeline it proposes, a phase-in designed to provide flexibility so the affected markets can meet "operational and logistical challenges" by which they might otherwise be stymied.
This is the first of a two-part discussion of a paper jointly issued by Basel and IOSCO on margin requirements for non-centrally cleared derivatives. The new paper solicits feedback on only four still-open issues, and the list of issues itself illustrates the near finality they claim for this paper.
Allen & Overy’s white paper puts it among those who take a rather gloom-and-doom attitude toward the likely consequences of a recent Second Circuit decision on Argentina's default. Personally, I don't agree that the sky is falling on the sovereign debt market.
The obvious reason for the allocation preferences of healthcare endowments is that they believe they need to remain very liquid. Jarvis, in this white paper, points out that the liquidity preference comes at a cost in performance.
If PE managers want to raise money in the present environment, they have to be very clear with their potential investors about how their strategy will work, and they have to pay attention to what those investors are trying to tell them. Further, it might help if neither side in that equation pays too much attention to consultants.
In the February 5th roundtable on the use and consequence of penny increments (decimalization), an event hosted by the SEC, several strong voices spoke in favor of alternative tick sizes, and others pressed for at least a pilot program. It appears that the SEC may have thought of this gathering as a way of laying the foundation for the latter.