It’s March 11th. Do you know where your collateral is?

Posted by on Mar 11, 2013 in Dodd Frank, Noteworthy, Regulatory, Whitepaper and Downloads | 0 comments

The OTC derivatives clearing mandate is upon us.

We will be running a series of Prezis called the “Making lemonade from lemons” series. This series, like our similarly titled whitepaper, will be looking beyond compliance to the Dodd-Frank Act (DFA), and examining the opportunities for competitive advantage that the challenges of the DFA present.

First Prezi in our series is focused on Clearing and Collateral.

The Prezi is best viewed in full screen mode (for normal sighted folk),

and may also be found on the Prezis and Case Studies tab on our Whitepapers and Case Studies page.

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Making premium lemonade (exhibit A) – JP Morgan adopts single trading platform

Posted by on Jan 7, 2013 in Dodd Frank, Reference | 0 comments

In today’s FT, JP Morgan announces its derivatives trading re-engineering effort – 3 years in the making, and baking.

Is this what everyone else means when they say preparing for regulatory compliance?

Probably not.

But this is what competitive differentiation looks like for JPM, so far (apparently):

– 4 technology program pillars (and 24 workstreams) of a strategic re-engineering effort (sponsor: J. Dimon).

  • Core trading platforms rationalization – rationalize application footprint, share pipes and plumbing between what’s left, plug into the same critical platforms;
  • Derivatives clearing, operations and STP workflow upgrades
  • Back Office systems upgrades
  • Critical Platforms re-engineering – where a lot of the neater stuff’s been percolating. Athena (which sounds like the single platform the FT is referring to – the shared risk, valuation and trade management platform with its common object store, DAG, node ranked calculations, and event-driven recalc), at least one (Python based) derivatives DSL, a global model library (with FPGA optimizations on several models).

– Market making rationalization – one primary market maker for each asset class regardless of eventual risk owner.

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When life throws you lemons….

Posted by on Jan 4, 2013 in Dodd Frank, Noteworthy, Regulatory, Whitepaper and Downloads | 0 comments

… build a juicer, corner the melon market and prove that dyslexia never stopped anyone from succeeding.

The Tabb Group – in a 2011 presentation to the Commodity Futures Trading Commission’s (CFTC) Technical Advisory Committee  – estimates that the largest US OTC derivatives dealers will spend a total of $1.8B on Dodd Frank (DFA) related technology costs; with the top eight spending over $1.5B.

An August 2012 update to a 2010 S&P analyst report puts its annualized estimate of DFA-related technology and related expenses for the top eight US banks at $2.0/$2.5B.

Throw in the profound and fundamental changes the regulations have wrought on OTC derivatives market structure, business models, terms of competition and future earnings expectations – and that’s a lot of chucked lemons.

All those lemons however present an opportunity for competitive differentiation.

This new Acuity Derivatives client report From Regulatory Compliance to Technological Advantage (making lemonade…) seeks to show that given the fundamental nature of changes to the OTC derivatives industry and also the high technology costs involved; that the deployment of this technology spend should not be viewed solely in the context of sunk compliance costs, but in the context of investing for competitive technology advantage.

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Unraveling Proprietary Trading – implementing the Volcker metrics

Posted by on Oct 22, 2012 in Classification, Dodd Frank, P&L Attribution, Regulatory, Risk, Volcker | 0 comments

The Volcker Rule mandates that banking entities cease proprietary trading, subject to certain exceptions for “permitted activities” including market making and risk-mitigating hedging.

The current proposed implementation of the rule includes recommendations for a framework of 17 quantitative metrics to be calculated and analyzed daily, and reported to regulators monthly.

The 17 quantitative metrics are grouped into 5 metrics groups (as listed to the left)

Each metrics group variously seeks to establish that a bank’s risk taking appetite, revenue profile, trading inventory and origination are all consistent with that of a market maker providing liquidity and hedging any residual risks incurred in the provision of this service.

Risk Management: the 4 metrics in this group try to establish that the bank’s trading units retain risk that is not in excess of the size and type required to provide intermediation/market making services to customers.

Sources of Revenue: the 5 metrics in this group try to establish that the bank’s trading units’ revenues are earned primarily from customer revenues (fees, commissions and bid-offer spreads) and not from price movements of retained principal positions.

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For whom the bell tolls…or regulatory reporting compliance

Posted by on Oct 15, 2012 in Regulatory, Uncategorized | 0 comments

For Swap Dealers (SD) and Major Swap Participants (MSP), Friday October 12, 2012 was the effective date for which compliance to the swap public and regulatory reporting rules of the Dodd-Frank Act is required (for interest rate and credit swaps). Many financial institutions have implemented solutions to support these requirements. We published a note (downloadable here) providing an overview of the technical complexities that a reporting solution would need to resolve. Some of these complexities emerge from the following:

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