Philippe Buhannic, Co-Founder, Chairman and CEO of TradingScreen has had his feet firmly planted at the executive level in the financial industry for many years now, including in positions as a managing director at Credit Suisse First Boston (CSFB) and as chairman and CEO of Fimat Futures USA Inc. He recently talked with JLN Managing Editor Christine Nielsen about the current environment and outlook for the industry, including an anticipation for the futurization of swaps, a topic which has garnered a good deal of attention recently as Dodd-Frank regulation starts to take hold and new ways of doing business must be built.
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A guest column written by Mayra Rodríguez Valladares.
Many a political pundit has tried to divine the agenda Governor Romney and Congressperson Ryan might implement if they win. The world of finance is very nuanced and complex; hence, equally important. Americans and the world should also be asking ourselves what will happen to global financial sector reform if President Obama and Vice President Biden were to be re-elected, since the world’s regulatory eyes are on the path that the U.S. will take.
During the first presidential debate, Governor Romney surprised listeners by giving a brief cameo to the Wall Street Reform and Consumer Protection Act, known popularly or infamously – depending on your political view – as Dodd-Frank. Governor Romney stated that Dodd-Frank, passed under President Obama the summer of 2010, was “the biggest kiss that’s been given to…New York banks I’ve ever seen.” Governor Romney is right about some of his biggest campaign donors, only if he meant that it was like kissing through an old screen door. Being designated a Title I bank, a Too Big to Fail one, carries with it higher capital, leverage, liquidity and disclosure requirements, along with having to write living wills to assist in an orderly liquidation in case a bank fails. Additionally, the newly created Financial Stability Oversight Council, with a 2/3 majority vote, could break up banks and other financial institutions that pose a systemic threat to the U.S. financial sector. Moreover, unlike what is often insinuated or bluntly stated by Dodd-Frank opponents, Title II bans taxpayer bailouts, it does not cement them.
Jae-Joon Lim is director, business development at Korea Exchange, home of the most traded contract in the world, the Kospi futures and options. At the 2012 Emerging Manager Forum in London, Lim discussed the Kospi, as well as OTC clearing of Korean yun denominated interest rate swaps, due to launch this fall. Interview by John Lothian News editor-in-chief Jim Kharouf.
The interest rate market will get some more competition at the end of the year with the launch of the NASDAQ OMX NLX futures exchange. JLN editor-in-chief Jim Kharouf spoke with exchange CEO Charlotte Crosswell, at IDX 2012 in London, about the new exchange’s move into euro and sterling-based short-term interest rate and long-term interest rate contracts, the trading and clearing platform and who will be participating in the new market.
Watch at MarketsWiki.tv.
With interest rates hovering around zero, with no lift in sight, the overnight rates market has been looking for new instruments that better reflect the market. NYSE Liffe U.S. is trying to fill that demand with its new General Collateral Finance or GCF Repo Index futures contract. The new contract, which will compete with the Fed Funds futures and LIBOR, is designed by DTCC for NYSE Liffe U.S. and is set to launch on July 16th. JLN editor-in-chief Jim Kharouf reports on NYSE Liffe U.S.’s recent introduction of the new contract in Chicago.
NYSE Euronext continues to develop its interest rate offerings, challenging competitors in the space, such as CME Group. Paul MacGregor, executive director, head of fixed income, NYSE Liffe (the global derivatives business of NYSE Euronext) sat down recently with JLN’s Managing Editor, Christine Nielsen, to discuss the outlook for the interest rate market and new products on the horizon for the exchange.
Michael Bodson is the chief operating officer, as well as the president and COO of the three Depository Trust & Clearing Corp. (DTCC) operating subsidiaries: The Depository Trust Company, National Securities Clearing Corporation and Fixed Income Clearing Corporation. On Apr. 23, it was announced that Bodson would succeed the retiring Donald F. Donahue as CEO of DTCC, effective July 1, 2012. Bodson will also become CEO of the three operating subsidiaries. Bodson talked this week with Douglas Ashburn, editor-at-large of John Lothian News and lead project manager for MarketsReformWiki and JLN managing editor Christine Nielsen.
Q: The business and regulatory climate has changed considerably in the few years you have been with DTCC. Could you talk about what has happened?
A: The re-regulation of the industry has had far-reaching impact and plays to the strengths of the asset the industry has created in DTCC. It really leverages our capabilities in terms of processing, risk management, in data, and our network globally. The most obvious example is the global trade repository for swaps, which built on the warehouse we had done for credit default swaps. That acted as a backbone for the mandate to create the GTR system globally.
As the regulations continue to be rolled out and as the industry continues to analyze the impact, there will be more opportunities to leverage what we have in place. We are working closely with the industry in terms of understanding where we can add value and leverage the investments we have made. Lastly, being a central counterparty and risk manager, the appreciation for – not only ourselves, but all the CCPs in the world – how we help mitigate risk and how we bring stability to the financial market has gone up in appreciation tremendously. That also puts pressure on us in terms of how regulators and market participants will expect us to perform at a high level. That is the most important thing we do. Failure of a CCP would really cause a ripple effect in the entire financial infrastructure. They have raised the bar on our performance, and we have to act accordingly, and that is a challenge we are up to meeting.
Q: And that challenge will be your main focus going forward with DTCC?
A: In anything we do, we can’t lose sight of what we handle on a day-to-day basis. We handle 100 million transactions. If we go down, the markets don’t function, and we understand that is a major obligation and responsibility. So, we can’t fall in love with any new opportunity and lose sight that what we do on a day-to-day basis is critical to the functioning of the world’s largest market.
For the rest of the interview, visit MarketsWiki at http://jlne.ws/I7fA2y
For immediate release
The Federal Reserve Board on Friday announced the formation of the Model Validation Council, which will provide the Federal Reserve with expert and independent advice on its process to rigorously assess the models used in stress tests of banking institutions. In addition, the Federal Reserve announced it will host a two-day symposium to discuss best practices in stress testing.
The Dodd-Frank Wall Street Reform and Consumer Protection Act required the Federal Reserve to conduct annual stress tests of large bank holding companies and systemically important, nonbank financial institutions supervised by the Board. The Model Validation Council will provide input on the Board’s efforts to assess the effectiveness of the models used in the stress tests. The council is intended to improve the quality of the Federal Reserve’s model assessment program and to strengthen the confidence in the integrity and independence of the program.
The 2012 Model Validation Council members are:
Francis X. Diebold, economics professor in the Department of Economics at the University of Pennsylvania (chair)
Peter Christoffersen, professor at the Rotman School of Management at the University of Toronto
Mark Flannery, professor at the Warrington College of Business Administration at the University of Florida
Philippe Jorion, professor at the Paul Merage School of Business at the University of California at Irvine
Chester Spatt, professor at the Tepper School of Business at Carnegie Mellon University
Allan Timmermann, professor at the Rady School of Management at the University of California at San Diego
Formation of the council is one part of the Federal Reserve’s efforts to tap outside expertise in the stress testing process. In another step, the Federal Reserve will host a symposium on stress testing models on September 13 and 14 at the Federal Reserve Bank of Boston. Discussions will focus on the design and implementation of stress testing models, and cover topics including the relative merits of different modeling frameworks, best industry practices, and key challenges. Participants will include experts from academia, industry, and the Federal Reserve.
Also on Friday, the Federal Reserve released Frequently Asked Questions (FAQs) and responses regarding models used in the stress tests in the recently completed Comprehensive Capital Analysis and Review based on industry outreach calls held last month. The FAQs cover a wide range of topics including methodologies to project losses for mortgages and other consumer portfolios, mortgage repurchase risk, and wholesale portfolios.
Chairman Ben S. Bernanke
At the National Association for Business Economics Annual Conference, Washington, D.C.
March 26, 2012
Read on federalreserve.gov.
Recent Developments in the Labor Market
My remarks today will focus on recent and prospective developments in the labor market. We have seen some positive signs on the jobs front recently, including a pickup in monthly payroll gains and a notable decline in the unemployment rate. That is good news. At the same time, some key questions are unresolved. For example, the better jobs numbers seem somewhat out of sync with the overall pace of economic expansion. What explains this apparent discrepancy and what implications does it have for the future course of the labor market and the economy?
Importantly, despite the recent improvement, the job market remains far from normal; for example, the number of people working and total hours worked are still significantly below pre-crisis peaks, while the unemployment rate remains well above what most economists judge to be its long-run sustainable level. Of particular concern is the large number of people who have been unemployed for more than six months. Long-term unemployment is particularly costly to those directly affected, of course. But in addition, because of its negative effects on workers’ skills and attachment to the labor force, long-term unemployment may ultimately reduce the productive capacity of our economy. The debate about how best to address long-term unemployment raises another important question: Is the current high level of long-term unemployment primarily the result of cyclical factors, such as insufficient aggregate demand, or of structural changes, such as a worsening mismatch between workers’ skills and employers’ requirements? If cyclical factors predominate, then policies that support a broader economic recovery should be effective in addressing long-term unemployment as well; if the causes are structural, then other policy tools will be needed. I will argue today that, while both cyclical and structural forces have doubtless contributed to the increase in long-term unemployment, the continued weakness in aggregate demand is likely the predominant factor. Consequently, the Federal Reserve’s accommodative monetary policies, by providing support for demand and for the recovery, should help, over time, to reduce long-term unemployment as well.
Tom Callahan of NYSE Liffe U.S. Reflects on NYPC’s First Anniversary & Discusses Competition in the Exchange Space
NYSE Liffe U.S. recently released a video touting its products and mapping out expectations for the next year. JLN Managing Editor Christine Nielsen talked with NYSE Liffe U.S. Chief Executive Tom Callahan about main points of focus, the competitive landscape and the soon-to-be-launched DTCC GCF Repo Index.