Monthly Archives: March 2016

Mckinsey : The future of bank risk management

Banks have made dramatic changes to risk management in the past decade—and the pace of change shows no signs of slowing. Here are five initiatives to help them stay ahead.

Risk management in banking has been transformed over the past decade, largely in response to regulations that emerged from the global financial crisis. But we believe it could be set to undergo even more sweeping change in the next decade. Indeed, while risk-operational processes such as credit administration today account for some 50 percent of the function’s staff, and analytics just 15 percent, by 2025 those figures could be around 25 percent and 40 percent respectively. Read more

Global Economics – Crisis Risks in 2016

Bottom Line: Last week provided a healthy reminder that market sentiment is fragile and vulnerable to rising global risk emerging from Asia, the Middle East, and the industrial world. But the biggest question for markets in 2016 may be whether policymakers have the capacity to respond, wherever the shock occurs. 

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Top Three Questions About Japan’s Bond Market

Question One: How big is Japan’s local currency bond market?  How does it compare to China’s bond market?

The size of the local currency bond market in Japan (tracked by the S&P Japan Bond Index) stood at JPY 1,154 trillion as of Jan. 27, 2016, which is equivalent to USD 9.7 trillion.  It is 1.7 times the size of the local currency bond market in China, as measured by the S&P China Bond Index.  Japanese sovereign bonds represent over 70% of market exposure; the current yield-to-maturity of the S&P Japan Sovereign Bond Index is 0.22%, compared with 2.83% for the S&P China Sovereign Bond Index.

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BIS – Fixed income market liquidity

Fixed income markets are in a state of transition. Dealers have continued to cut back their market-making capacity in many jurisdictions. Demand for market-making services, in turn, continues to grow. This report – prepared by a Study Group chaired by Denis Beau (Bank of France) – explores recent trends in fixed income market liquidity, following up on earlier analysis by the CGFS (see CGFS Publications, no 52).

Thus far, the effects of diverging trends in the supply of and the demand for liquidity services have not manifested themselves in the price of immediacy services but rather they are reflected in possibly increasingly fragile liquidity conditions. Key drivers of current trends in liquidity include the expansion of electronic trading, dealer deleveraging, possibly reinforced by regulatory reform, and unconventional monetary policies. Given the transitional state of fixed income markets, regulators appear to be facing a short-term trade-off between less risk-taking by banks and more resilient market liquidity. Yet, in the medium term, measures to bolster market intermediaries’ risk-absorption capacity will strengthen systemic stability, including through a more sustainable supply of immediacy services. Overall, the report underscores the need for a close monitoring of liquidity conditions as well as an ongoing assessment of how new liquidity providers and trading platforms are affecting the distribution of risks among market participants.

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EY Webcast – Accounting Matters ! 30th March, 3.30pm IST

We are pleased to announce a series of fortnightly Webcast “Accounting Matters!” to share experience and knowledge around current financial accountingand reporting issues and practices.

 In this webcastseries, our professionals will share insights on criticalaccounting and reporting topics and provide perspective onimplementation issues faced by finance professionals.

 Join us on Wednesday, 30th March 2016 (3.30 pm – 4.30 pm) to discover the intricacies of “Ind-AS 101- First Time Adoption of Indian Accounting Standards”.

Click here to register

Webinar : How to solve challenges of STRUCTURED PRODUCTS – John Hull, March 29, 10am ET

HOW TO SOLVE THE CHALLENGES OF STRUCTURED PRODUCTS

Join Us:  Tuesday, March 29th 2016 10am (ET) | 7am (PT) | 3pm (GMT) | 11pm (HKT)

Moderated by John Hull, PhD

Register now

Buy-side investment managers are increasingly using derivatives and structured products to enhance returns and reduce risk. These instruments allow asset managers, insurance firms and pension funds to expand into new asset classes and geographies in the search for alpha.

However, many investment firms face challenges with derivatives and structured products. These challenges include having the appropriate analytics, systems and workflow to model, price, trade and risk manage these complex instruments.

Without this ability, there is an increased risk of mispricing trades, inaccurate hedging and your capacity to seize new trading opportunities is limited.

Moderated by John Hull, PhD and presented by Renjulal Vidyadharan, Derivatives Analyst at FINCAD, this webinar will show how you can enhance your performance with structured products. The webinar will cover:

  • Evolution of the structured product markets
  • Different instrument types and how they are used
  • Advantages of an object-oriented framework and optimal approaches for modelling, pricing and risk management
  • Benefits including, more trading opportunities, more accurate pricing, better portfolio insight and efficient resource use

SPEAKERS


John Hull, PhD, Professor of Finance Co-Director of the Rotman Master of Finance Program, Rotman School of Management,  University of Toronto
John Hull is the Maple Financial Professor of Derivatives and Risk Management at Rotman. His research has an applied focus and is concerned with risk management, bank regulation, and valuation of derivatives. He is best known for his books Risk Management and Financial Institutions (now in its 3rd edition), Options, Futures, and Other Derivatives (now in its 9th edition), and Fundamentals of Futures and Options Markets (now in its 8th edition). His books have been translated into many languages and are widely used in trading rooms throughout the world, as well as in the classroom.

Renj Vidyadharan, Derivatives Analyst, FINCAD
Renjulal Vidyadharan is a Derivatives Analyst with the FINCAD Client Services team. Prior to joining FINCAD, he worked for RBS where he was responsible for the valuation and model risk assessment of the FX and Hybrids Options portfolios. Prior to this, he worked as a multi-asset structurer for Deutsche Bank, where his focus was on the European Retail market. Renjulal holds an MSc in Financial Engineering from the University of London and a BSc in Financial Mathematics Brunel University.

Debt, the double edged sword!

In corporate finance, the decision on whether to borrow money, and if so, how much has divided both practitioners and theorists for as long as the question has been debated. Corporate finance, as a discipline, had its beginnings in Merton Miller and Franco Modigliani’s classic paper on the irrelevance of capital structure. Since then, theorists have finessed the model, added real life concerns and come to the unsurprising conclusion that there is no one optimal solution that holds across companies. At the same time, practitioners have also diverged, with the more conservative ones (managers and investors) arguing that debt brings more pain than gain and that you should therefore borrow as little as possible, and the most aggressive players positing that you cannot borrow too much.

Credit, commodities and currencies

The global economy finds itself at the centre of three major economic developments: disappointing economic growth, especially in emerging economies; large shifts in exchange rates; and a sharp fall in commodity prices. These should not be seen as one-off shocks or headwinds but manifestations of a major realignment of economic and financial forces.

 

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Understanding Cocos – A Primer

Contingent convertible capital instruments (CoCos) are hybrid capital securities that absorb losses when the capital of the issuing bank falls below a certain level. In this article, we go over the structure of CoCos, trace the evolution of their issuance, and examine their pricing in primary and secondary markets. CoCo issuance is primarily driven by their potential to satisfy regulatory capital requirements. The bulk of the demand for CoCos has come from small investors, while institutional investors have been relatively restrained so far. The spreads of CoCos over other subordinated debt greatly depend on their two main design characteristics – the trigger level and the loss absorption mechanism. CoCo spreads are more correlated with the spreads of other subordinated debt than with CDS spreads and equity prices.

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Other Relevant Links

Contingent Convertible Bonds (Cocos) Issued by European Banks

A look at popular convertible bond structures in Asia

CoCo Bond Issuance and Bank Funding Costs

 

Factor-Based Investing in Fixed Income

Factor-based investing in equities has gained traction in recent years, but how do other asset classes, such as fixed income, fit into the equation?

Our latest research uses a two-factor model to create a hypothetical portfolio of U.S. investment-grade corporate bonds and then tracks the portfolio’s performance over time.

How did this portfolio perform compared to the broad market? And more importantly, what does this say about the potential of factor-based fixed income strategies as a whole?

  Read more

How to minimise financial statement risk ?

Telecom giant AT&T’s director of accounting discusses a few ways organisations can avoid unintended errors in financial statements.

In a complex world of evolving standards and technology, there are many risks associated with financial statements. Fortunately, there are things financial executives can do to minimise the unintended errors that can lead to a misstatement and restatement.

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Factor-Based Investing in US IG Corporate Bonds: Volatility and Credit Spread

Factor-based investing in equities is a well-established concept supported by over four decades of research. However, factor-based investing in fixed income remains in its nascent stages. Our analysis has found that factor-based fixed income strategies implemented in a rules-based, transparent index can represent an alternative tool for fixed income portfolio construction. In the next few blogs, we will detail our approach to and back-tested results of employing credit spread (value) and volatility as factors in order to systematically construct a portfolio of U.S. investment-grade corporate bonds.

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India Ratings Webinar on FY17 Sector Outlook on Pharmaceuticals, Tue, Mar 15, 2016 4:00 PM IST

India Ratings and Research invites you to a webinar on FY17 Sector Outlook on Pharmaceuticals.

You can now post your questions to the analysts in advance. Request you to kindly send in your questions at investor.services@indiaratings.co.in

Register now

Registration is mandatory to attend the webinar. Request you to kindly use your work email address to register.

There are limited seats available to attend the webinar and the same will be served on first come first serve basis.

World Market Divided between Credit Winners and Losers

Not since the financial crisis has there been such a divide between winners and losers in global credit markets.

It was on full display Wednesday as Anheuser-Busch InBev NV attracted a record $110 billion of investor orders and sold $46 billion of bonds on the same day that a fear gauge for the credit market jumped to a three-year high. In high-yield debt, just a quarter of the bonds in a widely followed index are trading near the benchmark’s average yield — the least since 2008, according to Rogge Global Partners.

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India Ratings Webinar on FY17 Sector Outlook on IT & Telecom, Fri, Mar 11, 2016 4:00 PM IST

India Ratings and Research invites you to a webinar on FY17 Sector Outlook on IT & Telecom.
Register now

You can now post your questions to the analysts in advance. Request you to kindly send in your questions at investor.services@indiaratings.co.in

Registration is mandatory to attend the webinar. Request you to kindly use your work email address to register.

There are limited seats available to attend the webinar and the same will be served on first come first serve basis.

Smart Beta Indices: The Key to Passively Unlocking Alpha? March 15, 2016 4:00 P.M. (IST)

While the concept of factor investing is not new to the market, the constant growth and evolution of this investment strategy keeps the learning curve steep.
Since the post-crisis recovery in 2009, smart beta products have clocked in strong growth in both number of products and assets under management. Traditionally active investing is used to generate excess return called alpha, while indices are used to capture market beta.
Smart beta is a game-changer in the active vs. passive dichotomy in that it lies somewhere in between.

 

Register/Join our webinar to explore how:

  • How a factor-based approach is taken to reflect strategies designed to provide alternative performance.
  • Identifying different selection and weighting techniques to create a variety of factors.
  • Embedding factor strategies in portfolio constructions with specific investment goals.
  • How Smart Beta may evolve in a global context.
Speakers:
Chintan Haria, Head – Product Development & Strategy.
ICICI Prudential Asset Management Company Limited 
Utkarsh Agrawal, Senior Analyst – Research & Design.
Asia Index Private Limited 
Vidhu Shekhar, CFA, Country Head – India.  CFA Institute 

India Ratings Webinar on FY17 Sector Outlook on Steel and Cement, 4PM, 9th MARCH

India Ratings and Research invites you to a webinar on FY17 Sector Outlook on Steel and Cement.
Register now

You can now post your questions to the analysts in advance. Request you to kindly send in your questions at investor.services@indiaratings.co.in

Registration is mandatory to attend the webinar. Request you to kindly use your work email address to register.

There are limited seats available to attend the webinar and the same will be served on first come first serve basis.

Signs of global liquidity tightening for emerging markets

Global liquidity conditions may have begun to tighten for emerging market economies (EMEs), according to updated data from the Bank for International Settlements. BIS General Manager Jaime Caruana detailed highlights from the latest global liquidity indicators, a measure of the ease of financing in global financial markets, in a lecture at the London School of Economics’ Systemic Risk Centre.

The stock of US dollar-denominated debt of non-banks outside the United States is an important gauge of global liquidity. That stock stood at $9.8 trillion at the end of September 2015, unchanged from the end of June. US dollar-denominated debt of non-banks in EMEs also held steady in the third quarter of 2015, at $3.3 trillion. Q3 marked the first time since 2009 that the measure, which is linked to the strength or weakness of the dollar, stopped increasing. Read more

Monetary Policy Questions – Answered by RBI Governor

Please find the web-links for edited transcripts hosted on RBI website featuring CCRA Students asking questions to Raghuram Rajan during last three monetary policy calls held for Researchers and Analysts in Sept 2015, Dec 2015 and Feb 2016. The relevant questions are also attached for your reference. We encourage all CCRA students to interact more with regulators for awareness about the credit credentials.
CCRA Students asking questions to RBI Governor - Raghuram Rajan during Fourth Bi-Monthly Monetary Policy Governor’s Teleconference with Researchers and Analysts
CCRA Students Questions - Sixth Bi-Monthly Monetary Policy Governor’s Teleconference with Researchers and Analysts
CCRA Students asking questions to RBI Governor - Raghuram Rajan during Fifth Bi-Monthly Monetary Policy Governor’s Teleconference with Researchers and Analysts