Buy-side physical FX clearing at LCH faces scepticism
Lack of clearing mandate and settlement wrangles mean demand for putative service remains weak Print this page
The onward march of central clearing in financial markets has hit an obstacle. A move by the world’s largest clearing house to encourage asset managers and hedge funds to clear deliverable foreign exchange trades is foundering, market participants say.
Questions have been raised over the costs to clients and banks from this type of clearing, as well as access to foreign currency for settlement. The lack of a regulatory imperative is also thought to have blunted demand.
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JP Morgan deducted $401 million from trading income in 2020 to cover valuation adjustments (XVAs) linked to its derivatives portfolio – the most since the bank expanded its accounting framework to capture all of these in 2013.
In its annual filings, the New York-based bank said it lopped $337 million off principal transactions revenue for credit valuation adjustments (CVA) and $64 million for funding valuation adjustments (FVA), though this didn’t taken into account the effect of hedging
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Stay of execution, RFR illiquidity and fallback reliance slow SOFR adoption Print this page
The derivatives market’s transition to the secured overnight financing rate (SOFR) has stalled since regulators granted US dollar Libor an 18-month reprieve, with traders blaming poor liquidity and the industry’s reliance on new fallback language for a dearth of new swaps linked to the successor rate since November.
Five of the most heavily used US dollar Libor fixings will survive until mid-2023, but regulators have insisted that no new Libor risk should be traded after the end of 2021, when
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WatersTechnology.com Confidential computing projects could answer industry’s cloud security questions
Perhaps smarter than blockchain and certainly closer than quantum computing, this type of complex computing could accelerate banks move to the cloud if the industry gets it right. Print this page
“It’s a funny story,” says Richard Brown, chief technology officer of R3, an enterprise software firm originally set up in 2014 as a blockchain consortium backed by major banks. When the vendor started working on Conclave, its confidential computing platform, “we didn’t envisage it being a new product. It was actually intended to improve some features of Corda, our blockchain.”