Thursday news roundup: defining liquidity, Moody’s, seclending CCPs, non-bank financial credit providers

Interesting news and articles from the last week that we haven’t gotten a chance to talk about elsewhere, including MiFID and liquidity, a suggestion that Moody’s has preferenced ratings of bonds held by its corporate owners, and securities lending CCPs. Read on.

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Sheila Blair on RRP: Not a fan

Sheila Blair, former head of the FDIC and now head of the private, nonpartisan Systemic Risk Council wrote an article in the July 24th Wall Street Journal “The Federal Reserve’s Risky Reverse Repurchase Scheme”. She has joined a group of regulators and former regulators who have some hesitation about the Fed’s RRP program.

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TRS as the next financing tool? Reuters and the FT have the story and we have some conclusions (Finadium subscribers only)

A revealing article in the Financial Times last week, “Goldman to sell up to €10bn bonds with new swap,” by Tracy Alloway and Michael Mackenzie, discussed Goldman’s plans to get financing on bond portfolios using Total Return Swaps (TRS). For readers interested in the interplay of financing and traded derivatives (which should be everyone), the […]

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WSJ writes about increase in bank UST positions being a Volcker Rule dodge. We wonder if it might be about LCR compliance?

A July 21st article in the Wall Street Journal “The Volcker Risk Bubble” by John Carney described a study by economists Jussi Keppoy and Josef Kortez about how banks are taking risk via increased US Treasury positions. We wonder if there might be another explanation: LCR.

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The SEC shakes up the US institutional money fund industry; institutional prime funds must go to floating NAV

The SEC has released their long-awaited rules on 2a-7 institutional money market funds and has chosen the floating NAV model. This is a shocker, to be sure. There were many who thought that the SEC would opt for one of two models, either floating NAV or constant NAV with restrictions, and many who are unhappy […]

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“Reforming Major Interest Rate Benchmarks” from the FSB looks at using GCF repo as derivatives benchmark

The Financial Stability Board published on July 22nd a major report “Reforming Major Interest Rate Benchmarks”. They look at how the ‘IBORs could be reformed. The LIBOR scandal may have prompted the work, but it goes beyond that to include “risk-free rate” options available. Repo is part of the mix and we take a look.

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Liquidity, Leverage and Securities Lending CCPs

Securities lending CCPs are at the intersection of major changes to liquidity and leverage in financial markets. Aside from requirements for increasing bank capitalization, Basel III is introducing new liquidity metrics such as the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). These shake-ups have already begun to change relationships between borrowers and […]

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More innovative products and ideas in securities finance

It is no secret that regulatory change brings out innovation (necessity and all that). Lately we’ve been seeing more proof of this in the securities finance space. Besides product launches in counterparty exposure management and ideas on centrally cleared repo, an interesting speech on innovation from a senior custody exec caught our attention. Here’s an […]

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“Embedded Financing: The Unsung Virtue of Derivatives”: An article from the Journal of Derivatives that every securities financing professional should read

Earlier in the summer there was a paper in the Journal of Derivatives that every person in securities financing should read. It is called “Embedded Financing: The Unsung Virtue of Derivatives” by NYU Stern Professor Bruce Tuckman. Let us explain.

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What happens when derivatives trading has more volume than the underlying? Is this the future for bond markets? (Finadium subscribers only)

The short answer is that the markets get messy and uncertain; we’ve seen this before with Fed Funds and OIS. Now the same situation could occur with US Treasuries, Gilts, other OECD government bonds and corporate bonds. What are the implications for this new market dynamic?

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