Category Archives: CCRA

Rising Above the Noise in ESG: Green Bonds

The emergence of ethical and sustainable concerns and the need for environmental investing has come with a wide range of options for fixed income market participants to navigate. One approach has been to rely on evaluation metrics, or ratings that measure the environmental and social impact of companies’ operations. The main challenge of this approach is that currently there is no clear standard of measurement in the market. Researchers at MIT working on the Aggregate Confusion Project found that when they compared “two of the top five ESG rating agencies and compute the rank correlation across firms in a particular year, we are likely to obtain a correlation of the order of 10 to 15 percent. At least the correlation is positive! It is very likely (about 5 to 10 percent of the firms) that the firm that is in the top 5 percent for one rating agency belongs to the bottom 20 percent for the other.”

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CREDIT-RISK ANALYSTS WEIGHING ESG

Consideration of environmental, social and governance (ESG) factors is becoming a key feature of bond pricing and credit-risk assessment – slowly.

Once the sole purview of investors, such consideration is earning a place on the agenda of credit ratings agencies globally. Given the weight ratings agencies carry in fixed-income markets, their heightened interest can give added impetus for ESG investment in different corners of the world, particularly where support for it is weak or where progress has recently stalled. The potential for positive impact is huge, given that global bonds – the largest asset class in capital markets – total nearly $88 trillion, Securities Industry and Financial Markets Association data shows.

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Can SDGs Shape the Future of Corporate Disclosure?

Businesses are showing increasing interest in using the Sustainable Development Goals (SDGs) to inform and enhance their social and environmental programs and ultimately their business strategies.  The SDGs were adopted by the United Nations in 2015 and include 17 ambitious goals and 169 targets aimed at ending poverty, protecting the planet, and ensuring prosperity for all.

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What the Central Banks Are Saying About Cryptocurrencies

Eight years since the birth of bitcoin, central banks around the world are increasingly recognizing the potential upsides and downsides of digital currencies.

The guardians of the global economy have two sets of issues to address. First is what to do, if anything, about emergence and growth of the private cryptocurrencies that are grabbing more and more attention — with bitcoin now surging toward $10,000. The second question is whether to issue official versions.

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Bond traders see MiFID’s silver lining as rules crack open data

European bond traders are looking on the bright side of tougher transparency rules — unprecedented market data that can help them make sure they’re not getting ripped off. New regulations will require details on many transactions to be published within 15 minutes, and sometimes before the trade has gone through, previously unheard of in the traditionally opaque bond market. Some dealers and investors are starting to plan how they will capture and analyze the data to help them work out fair values for trades.“Everyone should be analyzing and using the data to better understand the market,” said Mehmet Mazi, HSBC Holdings Plc’s global head of credit trading, and a speaker at this week’s Fixed Income Leaders Summit in Amsterdam. “Firms who do this smarter will have an edge.”Traders are welcoming the influx of data even though it risks making their jobs harder by potentially exposing their intentions to other parties in the predominantly over-the-counter market.  Read more

ISDA – Asia-Pacific OTC Derivatives Study

Derivatives markets have grown markedly in Asia-Pacific in the past decade, with Hong Kong and Singapore now pre-eminent in regional trading of FX and interest rate derivatives (IRD). Total IRD daily average turnover in Asia-Pacific markets increased to $298.3 billion (US dollars unless otherwise specified) in April 2016 from $187.4 billion in April 2007, while the equivalent figure in FX increased to $1.7 trillion from $1 trillion.

This rate of growth has outstripped that of global derivatives markets. Between 2007 and 2016, IRD turnover in Asia-Pacific markets grew at 5% compound annual growth rate (CAGR), while FX turnover grew at 6%. Global IRD and FX turnover grew at 4% and 5% CAGR, respectively, over the same period.

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Webinar: Liquidity Risk Management: What’s Next? – WebEx – Nov 14, 2017, 10am ET/1pm ET

As the debate over the SEC rule 22e-4 continues, one fact remains constant: for mutual fund managers and ETF sponsors, prudent liquidity risk management practices are critical to fulfilling their fiduciary responsibility. Whether the rule is altered or delayed, firms will ultimately need to revisit these practices and their compliance programs. Compliance requires robust data and valuation coverage as well as a strong multi-asset class risk framework and reporting capabilities.

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Join Carlo AcerbiManaging Director of Risk and Regulation Research at MSCI, and Dan HuscherExecutive Director of Fixed Income Pricing Product Development at IHS Markit, who will discuss how the latest industry developments may impact the implementation of SEC rule 22e-4 and the role data and analytics play in establishing a liquidity risk management program.

AGENDA TOPICS

  • Practical Guidance for Establishing a Liquidity Risk Management Program
  • IHS Markit’s Approach to Gathering Data on Thinly-traded Instruments
  • Overview of MSCI LiquidityMetrics Multi-asset Class Liquidity Risk Management Framework

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Session 1
7:00AM PST (San Francisco)
10:00AM EST (New York)
3:00PM GMT (London)
4:00PM CET (Paris)
7:00PM GST (London)

Session 2
10:00AM PST (San Francisco)
1:00PM EST (New York)
6:00PM GMT (London)
7:00PM CET (Paris)

U.S. Corporate Debt Issuance on Pace for Record Year

U.S. corporations continue to take advantage of the accommodative conditions created by a protracted period of low interest rates and strong market participant demand.  As of Oct. 1, 2017, U.S. investment-grade corporate debt issuance surpassed USD 1 trillion—three weeks ahead of 2016’s pace.  Additionally, the amount of speculative-grade corporate debt issued through the first three quarters of 2017 is 17% higher than it was after the first three quarters of 2016.  Combined, U.S. corporate issuance is on pace for another record year, which would mark the sixth consecutive year of increased corporate debt issuance (see Exhibits 1 and 2).

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US Treasury report: Changes don’t require new rules

The US Treasury released a report that outlines 91 technical fixes aimed at boosting the financial markets. Rather than proposing legislative changes, the report notes the Commodity Futures Trading Commission and the Securities and Exchange Commission could simply tweak existing rules and not endorse international rules unless they meet domestic objectives.

Treasury flexibility on CLO risk retention welcomed

A new Treasury report on capital markets includes a qualified risk-retention exemption for the Collateralized Loan Obligation market that’s winning plaudits from managers. The exemption appears to respond to industry arguments that requiring fund managers to hold 5% of their deals isn’t fair as it imposes the same restraint on CLO funds as those applied to other products implicated in the financial crisis.

China: Corporate Governance risks for investors

China adopted its first corporate governance code in 2001, ahead of many APAC peers, with updates in 2011 and 2016. As China’s market becomes more accessible to global investors, corporate governance practices will likely face increased comparison to global standards.  Our report references MSCI ESG Research’s rich corporate governance data to examine the opportunities and risks to minority shareholders presented by current corporate governance practices in the MSCI China Index.

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Fed unwind to raise demand for quality assets

As the Federal Reserve begins to unwind its $4.5 trillion balance sheet, market participants should keep an eye on how banks choose to replace the $1 trillion in reserves held by the central bank. The eight US banks designated as systemically important are required to hold about $2.7 trillion in high-quality liquid assets to satisfy post-crisis capital requirements

Delhi Event Invite – Challenges in FRTB Implementation, Oct 27, 7pm

Challenges in FRTB Implementation
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Date: Friday, October 27, 2017
Time: Registration: 7:00-7:30 PM
Presentation: 7:30-9:00 PM
Networking Reception: 9:00-10:00 PM
Location: Ramada Gurgaon Central
Plot 2 Sector 44, Central Emerald Hall
Gurugram , Haryana , 122003
India
Speaker: Udit Mahajan
Co-Head of Market Risk Projects, Deloitte UK
Synopsis: The Fundamental Review of the Trading Book (FRTB) represents an evolution of Basel regulation impacting Capital Markets with a deep focus on addressing the failings identified in the financial crisis. FRTB is a material overhaul of the Market Risk framework which impacts all core functions in Capital Markets (front office, risk, finance, treasury, and technology).

This session is focused on some of the key challenges faced by front office, risk methodology, and technology teams when adopting FRTB. Out of the many challenges being faced by banks today, five will be covered in detail:

  1. Front Office-Risk-Finance Alignment
  2. External Transactions and NMRF
  3. Multiple Revaluations in IMA
  4. Capital Optimization and Business Strategy
  5. Trading Desk Structure
 This event is organized as Chapter meeting for GARP
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Low rates generate 9-month record in US syndicated lending

US syndicated lending surged 24% year-on-year to a record $1.75 trillion in the first nine months, according to Thomson Reuters. The gain was fueled by still-low interest rates enticing indebted companies seeking to pare borrowing costs and acquire corporate targets.

Rising Fear of Extreme Events

High skew levels indicate heightened fears of “tail risk” – the chances of unlikely but highly consequential events that could sink share prices. Low market volatility largely continued through the summer, but how has options skew behaved – has it fallen to more “normal” levels? Do institutional investors appear to be dropping or keeping their downside protection?

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New market risk code won’t trigger big bank capital hikes: Basel

LONDON (Reuters) – Most banks will not have to hike capital significantly to meet stricter rules to counter trading risks, a survey showed on Tuesday, after Asian nations sought to delay introducing the code citing concerns about the need for more funds.

The code, known as the “fundamental review of the trading book” or FRTB, was drawn up by the Basel Committee on Banking Supervision and tightens “market risk” capital requirements.

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