The Securities and Exchange Commission and the US Commodity Futures Trading Commission have announced that the Options Clearing Corporation (OCC) will undertake remedial efforts and pay $20 million in penalties to settle charges that it failed to implement policies to manage certain risks. According to the SEC’s and CFTC’s respective orders, Chicago-based OCC failed to establish […]
Tag: Risk Management
A new survey from Citi shows that gaining visibility of their FX exposures remains a core concern for corporate treasurers. In the survey, which includes responses from 400 corporates of varying sizes, industries and geographies, improving cash forecasting was cited most frequently as the top priority amongst these firms. “Firms are recognising that they still […]
Singapore-based absolute return global AI fund Ensemble Capital, has gone live with Numerix’s Oneview Asset Management solution for risk and portfolio management.
Founded by former JP Morgan FX option traders Atsuo Ogaki and Damien Loh, Ensemble Capital uses machine learning and deep learning AI algorithms to analyse market data, forecast moves and trade currency and currency options in order to generate uncorrelated returns to traditional asset classes. Ensemble’s proprietary AI models instil discipline and provide a systematic approach to markets.
One aspect of the feedback to my midweek column caught my imagination and, possibly thanks to sleep deprivation, made me fear that I have seen the seeds of the next FX scandal being sown. I think the banking industry has a problem with how it judges the performance of voice traders – what worked two decades ago simply doesn’t now, and we need it to change before we breed a similar level of desperation to hit targets to those that incubated the chat room scandal.
The Basel Committee, established under the auspices of the Bank for International Settlements, has issued a statement highlighting its concerns that “the continued growth of crypto-asset trading platforms and new financial products related to crypto-assets has the potential to raise financial stability concerns and increase risks faced by banks.”
The Committee, which reports to the Group of Central Bank Governors and Heads of Supervision, acknowledges that the crypto-asset market remains “small” and that banks have “limited direct exposures”, however it argues that such assets do not “reliably provide the standard functions of money and are unsafe to rely on as a medium of exchange or store of value”.
The communications channels have been buzzing following Thursday’s column about banks taking more risk in their FICC businesses – especially FX – and some really good points were made by correspondents. But while there was general agreement that more risk-takers would benefit the broader industry, my correspondents and I diverged on a key point. To me this is not about spreads or the advantage of man over machine (or vice versa), it is about the risk taking role adding something different.
For many corporate treasurers, deciding what products to use in order to hedge their FX exposures is the easy part of the job. The hard part is working out exactly what their FX exposures are. Galen Stops reports.
When it comes to effectively hedging FX exposures, it seems that the biggest challenge facing corporate treasurers is simply getting an accurate view of what these exposures are.
“Getting a centralised view of our FX exposures is very difficult. It’s always an issue, it’s something that we work on constantly and we’ll probably never get to the point where we have a perfect view on this,” says a source at one European corporate with revenues over $22 billion.
There were a number of revealing statistics in the results of a risk management survey released this summer by HSBC in which 200 CFOs – or equivalent members of the finance department – and 296 senior treasury professionals took part.
The most immediately eye-catching amongst them was the fact that 70% of CFOs said that their companies have experienced lower earnings due to significant unhedged FX risk in the past two years, and moreover, that these were risks which their treasuries could have avoided.
In total, 70% of corporate chief financial officers (CFOs) said that their company suffered reduced earnings in the last two years due to avoidable, unhedged FX risk, according to a global survey of 200 CFOs and nearly 300 treasurers.
In the survey, conducted by HSBC and FT Remark, 58% of CFOs in larger businesses said that FX risk management is one of the two risks that currently occupy the largest proportion of their time, while 51% said that FX is the risk that their organisation is least well-placed to deal with.
Meanwhile, 72% of treasurers said that FX risk management is one of the most important aspects of their job and 53% said that they expect changes in FX regimes and regulation to materially impact their risk management strategy in the next three years.
Next Tuesday sees Mark Johnson’s bail application heard in New York and the documents filed by prosecution and defence are available online, which gives the wider world an opportunity to study both sides of the case through one prism. I’ve taken a look at both documents and, as someone with more than 40 years experience in this industry, it concerns me that a central plank of the prosecution’s case is backed up by an obvious and fundamental lack of understanding as to how the FX market handles large risk.