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BIS: OTC Derivatives Market Volume Shrank In 2H 2012 LONDON (Dow Jones)--The outstanding volume of over-the-counter derivatives shrank by almost 10% in the second half of last year, according to data released Wednesday by the Bank for International Settlements. The BIS said notional amounts outstanding fell to $647.76 trillion by the end of last year, from $706.88 trillion at the end of June, due largely to declines in the number of interest-rate swaps, credit-default swaps and equity-linked contracts. Interest-rate swaps accounted for more than three-quarters of the total notional volumes outstanding. At the same time, the gross market value of...

JPMorgan's trading debacle: why $2 billion is just the start By Stephen Gandel, senior editor May 11, 2012: 2:02 PM ET The bank's bad bet could curtail profits for years to come. FORTUNE -- For years, JPMorgan Chase (JPM), perhaps the riskiest bank in the world, got a pass. Sure there were minor hiccups along the way. But basically investors had the attitude with the bank run by Jamie Dimon that they were going to be hands off. Sub-prime mortgage loans: You've proved you can handle them. Foreclosure problems: We're sure you've got your best people on it. A derivative...

JANUARY 2012 Julian Fellowes is as English as Earl Grey and clotted cream. As an actor, director and writer, he has continually peeked under the petticoats of British mores and conveyed the details with relish to audiences. His writing of the upstairs-downstairs whodunit Gosford Park won the Academy Award for Best Original Screenplay in 2002, and his subsequent films Vanity Fair and The Young Victoria established Fellowes as the class-fixated Anglophile’s Anglophile. His two novels, Snobs and Past Imperfect, mined the same dishy blueblood vein, and both were Sunday Times bestsellers. A lifelong Conservative, Fellowes was made a Peer of...

Leading banker jumped to his death after snorting cocaine at welcome home party By Daily Mail Reporter Last updated at 4:45 PM on 8th September 2010 A leading banker jumped to his death after snorting cocaine at a party thrown to welcome him back from abroad, an inquest heard today. Neil McCormick plunged sixty feet and landed on rubble after he was spotted walking in circles and mumbling 'guys, don’t do this to me', the court heard. Mr McCormick, who had used cocaine regularly since studying at Oxford University, moved to Hong Kong last September with his wife Diana and...

NEW YORK (Reuters) – Warren Buffett's Berkshire Hathaway Inc (BRKa.N) (BRKb.N) on Friday said second-quarter profit fell 40 percent, as declining stock prices depressed the value of his derivative contracts. Operating profit nevertheless soared 73 percent, helped by the takeover of railroad operator Burlington Northern Santa Fe Corp, improvement in insurance underwriting results, and a turnaround in performance at the NetJets corporate plane unit. Net income fell to $1.97 billion, or $1,195 per Class A share, from $3.3 billion, or $2.123, a year earlier. Excluding investments, operating profit rose to $3.07 billion, or $1,866 per share, from $1.78 billion, or...

Islamic tahawwut master agreement arrives at last Author: Joel Clark Source: Risk magazine | 01 Mar 2010 Categories: Islamic Finance, Derivatives After 24 drafts and a consultation process lasting three-and-a-half years, the International Swaps and Derivatives Association and the International Islamic Financial Market (IIFM) today unveiled the sharia-compliant tahawwut (hedging) master agreement for Islamic derivatives. The protracted negotiations to draw up the agreement looked to be moving forward in September 2006, when Isda and the IIFM signed a memorandum of understanding and committed to convene regular meetings of a joint working group to move the project forward. But lengthy discussions...

  Too interconnected to fail = too big to fail: What is in a leverage ratio? Daniel Gros 26 January 2010 Did allowing financial institutions to become “too big” play a role in the financial crisis? This column argues that being “too interconnected” is also a factor, and that US accounting standards should recognise gross derivatives exposure on the balance sheet to make this interconnectedness, and the resulting exposure, clear. By now there is general agreement that a financial institution can not only be “too big”, but also “too interconnected” to fail. But how do we measure what it is...

An Object Lesson in Governmental Failure: Derivatives reform By Ken Silverstein If you want to understand why Congress seems completely incapable of checking the power of Wall Street, look back to a hearing on the Hill last October 7, and the subsequent events surrounding it. On that day, the House Financial Services Committee hosted a panel on reform of the market for derivatives, the financial instrument which played such a notable role in the country’s economic meltdown. Everyone rational knows that there is an enormous need to seriously reform the derivatives market, but the committee, headed by Congressman Barney Frank...

Derivatives Markets Rebound As Reform Recedes Robust trading activity in OTC derivatives products likely to continue as reform momentum dissipates. Guest Post by Oxford Analytica Over-the-counter (OTC) derivatives, particularly credit default swaps (CDSs), were faulted as a cause of the credit crunch, most prominently in a June 17 speech by US President Barack Obama announcing his administration’s plan for financial reform. This led to calls in the United States and elsewhere to regulate the CDS market. Regulatory outlook. Some of this pressure has been addressed indirectly by proposals such as the G20’s commitment to require all standardised OTC derivative contracts...

How Harvard Nearly Went Bankrupt After A Rogue Interest Rate Swap Went Very Sour Submitted by Tyler Durden on 10/16/2009 17:45 -0500 The school that epitomizes the dangers of groupthink (especially by very intelligent people) and tends to get caught in both the virtues and vices of its own ingeniosity, saw just how expensive hubris can be in 2009. Harvard's endowment dropped 27.3% in 2009 to $27 after hitting roughly $10 billion higher the year before. /snip Yet most notable in the entire report is an interesting story for all those who claim that representing the $200 or so trillion...

China state firms told to hold cash, hedge carefully BEIJING, Oct 12 — China's biggest state firms must highlight that "cash is king" in their 2010 budgets and control trading in financial derivatives, China's state asset watchdog said. The State-owned Asset Supervision and Administration Commission (SASAC) gave few details about its plans for derivative losses made by China's state firms. But SASAC said in a notice issued over the weekend that it did not want state firms to speculate in derivatives in 2010. "Any budget for financial derivatives should stick to the principal of risk hedging, and any trading scale...

US film company applies to launch ‘movie derivatives’ By Jeremy Grant in London Published: October 8 2009 23:26 | Last updated: October 8 2009 23:26 Being able to bet on whether a movie makes money or ends up a box office flop inched a step closer to reality on Thursday after a second company in the film business applied to US regulators to set up a “movie derivatives” exchange. The US futures regulator, the Commodity Futures Trading Commission, submitted for public comment an application by Veriana Networks, a privately owned, Delaware-registered company to operate Media Derivatives (MDEX) as an “electronic...

With all this blather about “green shoots” and economic “recovery” and new “bull market,” I thought I’d inject a little reality into the collective financial dialogue. The following are ALL true, all valid, and all horrifying… Enjoy.

Central clearing of derivatives seen adding risk Tue Jun 9, 2009 4:31pm EDT NEW YORK, June 9 (Reuters) - Proposals to require that all contracts in the $450 trillion derivatives market be centrally cleared could tie up valuable capital and constrain the liquidity of companies that use the contracts to hedge their businesses, derivatives users and dealers warned on Tuesday. The use of central clearinghouses is viewed as key to removing systemic risks posed by the contracts, should the failure of a large dealer spark a chain of losses globally. The issue arose after the collapse last year of Lehman...

“Concentrations of risk, plagued with deadly correlations” Posted on Tuesday, March 17th, 2009 By bsetser The FT’s Gillian Tett makes a simple but important point: AIG’s role in the credit default swap market meant that a lot of risk that the bank regulators thought had been dispersed into many strong hands ended up in a single weak hand. Tett: /snip But the AIG list shows what the fatal flaw in that rhetoric was. On paper, banks ranging from Deutsche Bank to Société Générale to Merrill Lynch have been shedding credit risks on mortgage loans, and much else. Unfortunately, most of...

Satyajit Das's Blog - Fear & Loathing in Financial Products Credit Default Swaps – Exercises in Surrealism Posted At : March 16, 2009 5:35 AM | Posted By : Satyajit Das Related Categories: Derivatives At the quantum level, the laws of classical physics alter in intriguing ways. In financial markets, at the derivative level, the rules of finance also operate differently. The derivative industry’s indefatigable advocacy of credit default swaps (“CDS”) centers on the fact that contracts related to recent defaults settled and the overall net settlement amounts were small. Closer scrutiny suggests causes for caution. The CDS contract is...

How Harvard's Investing Superstars Crashed Bernard Condon and Nathan Vardi 02.20.09, 11:20 PM ET Stocks were tumbling last fall as the new school year began, but at Harvard University, it was as if the boom had never ended. Workers were digging across the river from Harvard's Cambridge, Mass., home, the start of a grand expansion that was to eventually almost double the size of the university. Budgets were plump, and students from middle class families were getting big tuition breaks under an ambitious new financial aid program. The lavish spending was made possible by the earnings from Harvard's $36.9 billion...

Coming Soon: The 600 Trillion Derivatives Emergency Meeting Seeing a lot of Google queries regarding the size of the derivatives market landing at an older post of this blog, here is an update with the latest official figures (pdf) from the Bank for International Settlements (BIS.) Hold your breath, as we are not anymore talking paltry billions but TRILLIONS of whichever fiat currency. Current emergency meetings on banks and markets are still only in the stage where politicians and central bankers are bickering over how to create a few more hundred billions Euros and FRNs. But toxic MBS pale in...

Bond insurers MBIA, Ambac post bigger losses; shares dive By MarketWatch Last update: 9:54 a.m. EST Nov. 5, 2008 BOSTON (MarketWatch) -- A pair of bond insurers saw their stocks plunge Wednesday morning after they reported wider quarterly losses as the companies continue to get buffeted by their exposure to complex credit derivatives linked to the sagging housing market. Ambac Financial Group Inc. (ABK AMBAC Inc) said its third-quarter loss widened to $2.43 billion, or $8.45 a share, from a $360.6 million, or $3.53 a share, loss. Chart of ABK The company blamed the bigger loss on hits from credit...

Toxic corporate CDOs may touch $1 trillion (originated from Bloomberg)

Welcome to Lesson 3 of ‘The Basics of Credit Derivatives’. For this lesson I will be referencing the following article: The Ballooning Credit Derivatives Market: Easing Risk or Making It Worse?, which was published in November 2005 by the Wharton School at the University of Pennsylvania. My comments will be in Red. Let’s get started: The Ballooning Credit Derivatives Market: Easing Risk or Making It Worse? (continued) Published: November 02, 2005 in Knowledge@Wharton Short Squeeze Rosen estimated there are $25 billion in credit derivatives riding on $2 billion in Delphi bonds. Just as any catastrophe triggers insurance claims, Delphi's problems...

Lesson 1 can be found here: Lesson 1 Welcome to Lesson 2 of ‘The Basics of Credit Derivatives’. For this lesson I will be referencing the following article: The Ballooning Credit Derivatives Market: Easing Risk or Making It Worse? , which was published in November 2005 by the Wharton School at the University of Pennsylvania. My comments will be in Red. Let’s get started: The Ballooning Credit Derivatives Market: Easing Risk or Making It Worse? (continued) Published: November 02, 2005 in Knowledge@Wharton Credit Default Swaps Credit derivatives are contracts that go up or down to track the fortunes of underlying...

Welcome to Lesson 1 of ‘The Basics of Credit Derivatives’. For this lesson I will be referencing the following article: The Ballooning Credit Derivatives Market: Easing Risk or Making It Worse?, which was published in November 2005 by the Wharton School at the University of Pennsylvania. My comments will be in Red. Let’s get started: The Ballooning Credit Derivatives Market: Easing Risk or Making It Worse? Published: November 02, 2005 in Knowledge@Wharton When Delphi filed for bankruptcy October 8, investors had to start assessing their losses on more than $2 billion in the auto parts maker's bonds, which have recently...

A nuclear winter? Sep 18th 2008 From The Economist print edition The fallout from the bankruptcy of Lehman Brothers WHEN Warren Buffett said that derivatives were “financial weapons of mass destruction”, this was just the kind of crisis the investment seer had in mind. Part of the reason investors are so nervous about the health of financial companies is that they do not know how exposed they are to the derivatives market. It is doubly troubling that the collapse of Lehman Brothers and the near-collapse of American International Group (AIG) came before such useful reforms as a central clearing house...

Reuters - Saturday, September 20 US SEC STAFF RECOMMEND EXEMPTION FOR MARKET MAKERS IN DERIVATIVES COVERED BY SHORTING ORDER

Three-month Libor marks biggest jump in nine years TED spread widens to level not seen since Black Monday 1987 By Lisa Twaronite, MarketWatch Last update: 5:37 p.m. EDT Sept. 17, 2008 SAN FRANCISCO (MarketWatch) -- A closely watched measure of global borrowing costs made its biggest jump in nine years Wednesday and another lending risk gauge rose to a level not seen since Black Monday in October of 1987, as banks grew increasingly wary to lend to each other and sell-shocked investors sought refuge in safe-haven short-term Treasury bills. Three-month Libor in U.S. dollars jumped 19 basis points to 3.0625%...

Global credit system suffers cardiac arrest on US crash By Ambrose Evans-Pritchard Last Updated: 11:59pm BST 17/09/2008 Have your say Read comments The global credit system almost grinds to a halt as yields on US Treasury bills reach zero for the first time since the Great Depression, writes Ambrose Evans-Pritchard The global credit system came close to total seizure yesterday. Key parts of the derivatives market shut down and a panic flight to safety depressed the yield on three-month US Treasury bills to almost zero for the first since the Great Depression in 1934. The closely-watched TED-spread measuring stress in...

Commodities ravaged as traders flee risk Leo Lewis, Asia business correspondent Surging fears of Armageddon in the global financial system ravaged a wide selection of commodities across Asia as groups ranging from hedge funds to day traders spent the day in a headlong flight from risk. The shock waves from the bankruptcy of Lehman Brothers reverberated through markets for vegetable oil, soy beans, rubber and industrial metals as confidence in the financial system faltered, global growth prospects dimmed and cash became king. Broad baskets of commodities — once seen by speculators as a sure-fire bet because of China and India’s...

Wall Street crisis: Is this the death knell for derivatives? On page 62 of last year's accounts, under the heading "off balance sheet arrangements" Lehman had derivative contracts with a face value of $738bn Nils Pratley guardian.co.uk, Monday September 15 2008 09:18 BST If this is the death of Wall Street as we know it, the tombstone will read: killed by complexity. Derivatives in their baffling modern forms – collateralised debt obligations, credit default swaps and so on – lie at the heart of the failure of Lehman, Bear Stearns, Fannie and Freddie, and even our own Northern Rock. The...

Derivative traders open session to reduce Lehman risk Sun Sep 14, 4:04 pm ET NEW YORK (Reuters) – A rare emergency trading session opened Sunday afternoon to allow Wall Street dealers in the $455 trillion derivatives market reduce their exposure to a potential bankruptcy filing by Lehman Brothers. U.S. regulators and bankers were making last-ditch efforts on Sunday to prevent toxic assets from ailing Lehman Brothers (LEH.N) spilling into global markets and rupturing investor faith in the international financial system. "This is an extremely, and I stress extremely, rare event. It also speaks to the more general notion that, in...

Insight: The adventure never ends in the derivatives Wonderland By Aline van Duyn, US markets editor Published: September 11 2008 19:17 | Last updated: September 11 2008 19:17 The experiences of those frazzled executives in charge of reducing risks in the credit derivatives market are starting to resemble Alice’s adventures in Wonderland. Alice shrank after drinking a potion, but was then too small to reach the key to open the door. The cake she ate did make her grow, but far too much. It was not until she found a mushroom that allowed her to both grow and shrink that...

The Tax-Dodge Derivative Anita Raghavan 09.11.08, 6:55 PM ET While Lehman Brothers was fighting for its life in the markets today, it was also battling in a Senate panel's hearing on whether the company and others created a set of financial products whose primary purpose is to dodge taxes owned on U.S. stock dividends. The "most compelling" reason for entering into dividend-related stock swaps are the tax savings, Highbridge Capital Management Treasury and Finance Director Richard Potapchuk told the Senate's Permanent Subcommittee on Investigations. Lehman Brothers , Morgan Stanley and Deutsche Bank are among the companies behind the products. "Without...

The bailout culture turns 10 Commentary: Today's bailouts find roots in the Fed's handling of LTCM By David Weidner, MarketWatch Last update: 12:01 a.m. EDT Sept. 11, 2008 NEW YORK (MarketWatch) -- In less than two weeks, Wall Street will pass a milestone that on the surface probably doesn't seem to have much relevance today: the 10th anniversary of the bailout of Long-Term Capital Management. But the LTCM near-collapse and rescue set in motion Wall Street's unchecked rush to risk during the decade by signaling to the market that the government would ultimately come to the rescue. Wall Street is...

Fannie and Freddie's New Derivatives Cliffhanger The bailout triggers settlement of $1.4 trillion in unregulated credit-default swaps. Do the hedge funds have the money? by Ben Levisohn In taking over Fannie Mae (FNM) and Freddie Mac (FRE), Henry M. Paulson Jr. and the U.S. Treasury Dept. cleared up uncertainty surrounding the companies' common stock, preferred shares, and senior and subordinated debt. But Uncle Sam's intervention also triggered a default event, according to the International Swaps & Derivatives Assn., and now roughly $1.4 trillion in outstanding credit-default swaps, a type of derivative contract, must be settled. You remember the credit-default swap...

Fannie, Freddie bailout triggers credit default swaps More than $1 trillion of derivative contracts will need to be settled By Alistair Barr, MarketWatch Last update: 1:30 p.m. EDT Sept. 8, 2008 SAN FRANCISCO (MarketWatch) - The U.S. government's seizure of Fannie Mae and Freddie Mac has triggered more than $1 trillion of credit default swaps tied to the mortgage giants. The International Swaps and Derivatives Association said in a memo on Monday that 13 major credit default swap dealers unanimously agreed that a credit event had occurred.

Worsening the Fallout By: Financial Armageddon Sunday, August 24, 2008 11:14 PM Sectors: Consumer Staples , Finance Symbols: NYT, UBS When over-the-counter derivatives really began to gain traction in the financial world, Wall Street insiders and industry regulators constantly proclaimed their virtues -- and ignored their shortcomings. Among other things, they argued that these paper promises would allow complex risk to be broken down into its constituent parts and redistributed to those who wanted and understood the exposure they were taking on. In truth, no one really knew what it was they were slicing-and-dicing, what new risks were being created...

Counterparty risk climbs as US financials slum

Buckle Up With transparency and truth in short supply, caution is warranted BY TONY ALLISON Investor Jim Rogers minced few words, as usual, when asked about the U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac. “It is an unmitigated disaster”, said Rogers. “Taxpayers will be saddled with debt if Congress approves (U.S. Treasury Secretary) Henry Paulson's request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac.” "These companies were going to go bankrupt if they hadn't stepped in to do something, and they should've gone bankrupt with all of...

Carvill Sees Rising Interest in Trading for Hurricane Derivative Products July 17, 2008 Independent reinsurance broker Carvill reports that trading in its derivative contracts for hurricane risk continues to grow. The Carvill Hurricane Index trades on the Chicago Mercantile Exchange (CME). As news of Hurricane Bertha, the first real activity of the season, came through last week, Carvill said more CHI contracts were completed, taking the nominal value of derivatives traded to nearly $60 million. In addition to exchange traded activity, there is also considerable interest in bespoke over the counter (OTC) derivatives and more conventional reinsurance based on CHI,...

Worst Case ScenarioBy John RileyChief Strategist07/15/08 What a year - bank and brokerage failures, Federal bailouts, sub-prime mortgage mess and a looming derivative disaster. What would happen if things continue to unravel? What would that look like?Runs on the BanksWith the failure of IndyMac, we’ve already seen a run on a bank force its closure. What if a few more banks had runs? Depositor panic could cause runs at several banks that are on the edge of failure. A run could push them over. The FDIC is spending about 10% of its reserves on bailing out IndyMac. How many more...

Shadow boxing the apocalypse Commentary: Veteran Schultz says we're in 'major global upheaval' By Peter Brimelow, MarketWatch Last update: 12:33 a.m. EDT July 7, 2008NEW YORK (MarketWatch) -- The eponymous octogenarian editor of the International Harry Schultz Letter may be settling down. But he's settling down in apocalypse mode. Well over (ahem!) 30 years ago, late for an interview with Harry Schultz for the old Financial Post of Canada, I was sitting on a bollard by an Amsterdam canal, wondering why the devil the directions I had to his latest eyrie were mysteriously incomplete, when my attention was caught by...

Regulators need to shed light on derivatives By John Coffee Published: June 29 2008 18:18 | Last updated: June 29 2008 18:18 Worldwide, if securities regulators believe in one thing, it is the value of transparency. Sunlight, they know, is the best disinfectant. But sometimes in confusion they pull down the blinds. This has just happened in the US and, as a result, transparency in the market for corporate control is in danger. Unlike other regulators, the Securities and Exchange Commission has chosen – at least provisionally – to disregard equity derivatives and thus allow acquirers to use them to...

Derivatives, Dark Liquidity, And Increasing Systematic Risk - - Protection & Profit Potential “Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them: we view them as time bombs, both for the parties that deal in them and the economic system.” “…The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear…” “…In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”...

AIG's derivative woes hit confidence By Michael Mackenzie, Aline van Duyn and Stacy-Marie Ishmael in New York Mon Feb 11, 4:40 PM ET Confidence in the credit markets suffered a fresh blow on Monday after AIG, the insurance group, disclosed problems with valuing its derivatives portfolio. Measures of credit risk in both the US and Europe reached record levels, indicating widespread risk aversion. The news from AIG followed last week's pressure on the credit markets amid fears about a rise in corporate and commercial property debt defaults. In the US, the cost of buying protection against the default of investment...

A French Style of Capitalism Is Now Stained By NELSON D. SCHWARTZ and JAD MOUAWAD PARIS — In a country where the hurly-burly of market capitalism has long been viewed with suspicion, Société Générale was a rare Gallic success story — the Chanel or Château Margaux of French banking. The bank pioneered some of the most complex instruments in international finance, earning billions of dollars and the grudging respect of its American and British rivals. So it was a shock to their national pride when top executives of Société Générale found themselves on the seventh floor of the company’s ultramodern...

Derivative liquidity crisis ‘to continue’ By David Oakley in London Published: November 23 2007 23:38 | Last updated: November 23 2007 23:38 The world’s biggest derivatives markets could suffer serious liquidity problems until the end of the year, bankers have warned. As worries over the health of the financial system weigh heavily on banks and funds, the vast over-the-counter markets in equity, credit and interest rate derivatives have seen trading volumes slow to a trickle. Hawkins, equity derivatives strategist at Lehman Brothers, said: “There is a huge amount of uncertainty out there with extreme volatility. If you have made money...

Hedge fund jitters emerge, 7 years after big failure Wed May 11, 5:37 PM ET NEW YORK (AFP) - Jitters are growing in financial markets about the potential for failure of hedge funds, largely secretive and unregulated pools of capital, seven years after a spectacular collapse of one such fund. A number of reports and market rumors circulated in recent days about potential problems with hedge funds, although there have been no confirmed instances of difficulties at any of the funds. But because hedge funds operate largely in secret, with little or no government oversight, some analysts have been concerned...