Inventory Aging is a rather innocuous looking member of the band of (now) seven metrics that, under the Volcker rule, banking entities with significant trading assets and liabilities are required to calculate daily and report monthly.
As written, the metric description seems straightforward enough:
Inventory Aging generally describes a schedule of the trading desk’s aggregate assets and liabilities and the amount of time that those assets and liabilities have been held. [It] should measure the age profile of the trading desk’s assets and liabilities and must include two schedules, an asset- aging schedule and a liability-aging schedule.
The graphic below broadly outlines the processes of asset/liability tagging, matching, sorting and netting of trades involved in generating an inventory aging schedule.
A very interesting article in last month’s Risk, on the pre and post crisis OIS gold rush – Goldman and the OIS gold rush.
If several trading desks were up to 4/5 years behind Goldman in OIS/Libor and XCcy bases pricing, I wonder how far behind their market risk departments are.
Would all trades with cross currency CSAs report XCcy basis? Makes one wonder …
Today’s Senate Sub-committee hearing on last year’s credit derivatives trading loss at JP Morgan’s CIO office makes, in some segments, for riveting Q&A. The Senate sub-committee report released yesterday (as well as JPM’s own internal report) also makes for very compelling reading.
Both reports, and the sub-committee hearing, highlight some very specific control and reporting issues that are unlikely to be unique to JPM. The hearing also was (somewhat) critical of the Office of the Comptroller of the Currency’s (OCC) oversight. It would seem more likely than less that regulatory oversight of these issues will see increased focus and scrutiny across the industry.
Below, we list nine (9) possible implications. Using our schematic of key post-DFA process and data flows within OTC derivatives infrastructure, we also highlight the functional areas we believe may see such increased regulatory oversight scrutiny as a consequence.
Dealer firms will be well served to consider conducting current state analyses and