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Good Risk Governance Pays

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Category Archives: Derivatives

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Increased Regulation of Derivatives by Registered Funds

Posted in Derivatives, Disclosure and Transparency, International Investing, Investment Management, Mutual Funds, Regulation, Risk Management, Susan Mangiero, Trading
On December 11, 2015, the U.S. Securities and Exchange Commission (“SEC”) took steps to more actively regulate how derivative instruments are used by registered investment companies such as mutual funds, exchange-traded funds (“ETFs”), closed-end funds and business development companies. According to its Fact Sheet, a portfolio manager would have to either limit leverage via the use of derivatives to… Continue Reading

Effective Business Communications – Is Squeaky Clean Better?

Posted in Banking, Derivatives, Ethics, Financial Reporting, Investment Management, Trading
During a recent conversation with colleagues about effective business communication, the topic arose as to whether it is okay to use a swear word or two in conversations with colleagues and clients. Having worked on several tradings desks at different banks, my experience likely reflects two extremes. At one financial institution, I traded foreign exchange… Continue Reading

SEC and Asset Manager Disclosures About Use of Derivatives

Posted in Derivatives, Disclosure and Transparency, Investment Management, Liquidity, Regulation, Valuation
Notice anything odd about this announcement? Are we to celebrate this creamy dessert on May 21, 22, 23, 24 and 25? If so, why is the event referred to as a “day” celebration? A quick search on the internet informs that National Vanilla Pudding Day is in fact May 22, 2015 and does not span… Continue Reading

Risk Management by Robot

Posted in Compliance, Derivatives, Litigation, Model Risk, Regulation, Risk Management
Risk Magazine editor Lukas Becker has an eye-popping article in the September issue about automated risk management. (See “Robot risk managers excite swap market-makers,” September 1, 2014). Given the constraints on profitability, in part due to the costs of rising regulation, interest rate swap dealers are seeking a way to use algorithms to “monitor multiple… Continue Reading

Using Leverage to Chase Returns

Posted in Derivatives, Disclosure and Transparency, Financial Reporting, Investment Management, Leverage, Liquidity, Litigation, Municipal Bonds, Pension, Regulation, Risk Management
It is no secret that pension economics is becoming the topic du jour in public finance land. On August 11, 2014, the U.S. Securities and Exchange Commission (“SEC”) made known its allegations of securities fraud against the State of Kansas. According to the official cease-and-desist order, information made available to municipal bond investors “failed to… Continue Reading

Due Diligence & Regulatory Hot Buttons: What Advisors Need to Know About Liquid Alts

Posted in Derivatives, Hedge Fund, Liquidity, Mutual Funds
I am delighted to join a top-notch panel of financial speakers to talk about the explosive growth in the liquid alternatives (“alts”) market. Courtesy of the Center for Due Diligence, our session will take place on October 15, 2014 in San Antonio, Texas and will be part of what is expected to be a lively and informative conference… Continue Reading

Muni Bonds, Pensions and Financial Disclosures

Posted in Compliance, Derivatives, Disclosure and Transparency, Financial Reporting, Hedge Fund, Liquidity, Litigation, Municipal Bonds, Pension, Regulation
I had the pleasure of co-presenting on February 19 with senior attorney Elaine Greenberg as part of an educational briefing for the Practising Law Institute. A partner with Orrick, Herrington & Sutcliffe LLP and the former chief of the Municipal Securities and Public Pensions Enforcement Unit, part of the U.S. Securities and Exchange Commission (“SEC”), Attorney… Continue Reading

Dodd-Frank, Derivatives Clearing and Risk Shifting

Posted in Compliance, Derivatives, Disclosure and Transparency, Financial Crisis, Regulation, Risk Management
With the advent of new rules and regulations, particularly one as sweeping as the Dodd Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). there are bound to be those who alter their strategic plans as a result. At 848 pages long, this legislation has resulted in hundreds of new mandates, none of which are… Continue Reading

Muni Bond Public Pension Disclosures – Still High Priority For Regulators

Posted in Compliance, Derivatives, Disclosure and Transparency, FINRA, Litigation, Municipal Bonds, Mutual Funds, Pension, Regulation
According to a November 8, 2013 press release, the U.S. Securities and Exchange Commission (“SEC”) has appointed LeeAnn Ghazil Gaunt as head of the Municipal Securities and Public Pensions Unit of its Enforcement Division. She is credited for overseeing pay-to-play actions and investigations that range from inappropriate hedge accounting disclosures and market timing. No doubt… Continue Reading

Asset Management Industry Trends For 2013

Posted in Broker Dealers, Compliance, Derivatives, Fiduciary Liability, Financial Expert, FINRA, Governance, Investment Management, Regulation
Life in asset management land will never be the same again. According to “The Future of Asset Management” by Maha Khan Phillips (CFA Institute Magazine, Jan/Feb 2013), operating margins are under pressure, asset growth is anemic, investors are moving away from equity around the world and competitive pressures are not going away. This is bad news… Continue Reading

Swap Market Participants – How to Qualify for the CFTC’s End-User Exception and Properly Implement a Hedging Program

Posted in Derivatives, Risk Management
Join us for a complimentary educational webinar on December 4, 2012 from 1:00 PM to 2:15 PM EST to learn more about the Dodd-Frank swaps end-user exemption, the role of the CFTC and corporate hedging issues. Click to register for this free swaps end-user event, sponsored by FTI Consulting. In the aftermath of the 2008… Continue Reading

LIBOR Rate Settlement and Assessing Impact on Pension Funds

Posted in Derivatives, Litigation, Pension
Some suggest that the fallout related to a recent settlement about LIBOR rate setting is just the beginning of a spate of questions about what it all means. According to “LIBOR scandal could hit pension funds depending on derivatives trades” (July 4, 2012), Investment & Pensions Europe reporter Cecile Sourbes describes the kind of information that… Continue Reading

The Cats and Dogs of Derivative Instrument Regulation

Posted in Derivatives, Regulation, Risk Management
In survey after survey, capital market participants complain about regulatory overload and complexity. The last thing any compliance officer wants to have happen is that his or organization is trying to do everything right but ends up on the wrong side of the law because rules differ across jurisdictions. Then there are the clever arbitrageurs… Continue Reading

Risk Management Survey Says More Work Is Needed

Posted in Compliance, Derivatives, Disclosure and Transparency, Financial Reporting, Model Risk, Risk Management
After the last few years, it seemed that risk managers were finally getting their due respect. Alas, a new survey suggests that more work remains to be done. According to “Too good to fail? New challenges for risk management in financial services” by Rob Mitchell with the Economist Intelligence Unit, “Inculcating and embedding a stronger… Continue Reading

SEC Proposals For Swaps Dealers – A Lot At Stake

Posted in Derivatives, Regulation
In her June 29, 2011 comments, SEC Chairman Mary Shapiro laid out proposed rules for over-the-counter swaps dealers, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. In addition to mandating more and better communication about potential conflicts of interest (and related pay to play problems) for special entities such as pension plans,… Continue Reading

ERISA Fiduciaries Under Attack: Key Litigation and Regulatory Developments

Posted in Derivatives, ERISA, Fiduciary Liability, Hedge Fund, Leverage, Litigation, Model Risk
Courtesy of Strafford Publications, Dr. Susan Mangiero spoke on the topic of ERISA investment fiduciary pain points and the role of service providers. She was joined by esteemed colleagues Andrew L. Oringer (Partner, Ropes & Gray) and Christine A. Dart (Vice President, Chubb & Son) in a lively and informative debate about current ERISA litigation… Continue Reading

Company Boardrooms and Pension Plans

Posted in Derivatives, Disclosure and Transparency, ERISA, Fiduciary Liability, Litigation, Pension
Russell research strategist, Mr. Bob Collie, writes about the growing liabilities and assets of large public U.S. corporations. Large indeed! According to 2010 data, 16 publicly traded U.S. corporations boast membership in what he refers to as the “$20 billion club.” Their combined balance sheet liabilities of $740 billion or roughly 40% of corporate America’s… Continue Reading

Regulatory Scrutiny of High Frequency Trading

Posted in Derivatives
In case you missed it, CFTC commissioner Bart Chilton gave a memorable speech about new species making their way into the financial ecosystem. Asserting that speculators are an important part of the futures market, Mr. Chilton adds that nearly $200 billion of money from hedge funds, pensions and index funds (what he labels the “Massive… Continue Reading

Swaps Can Bite Investors

Posted in Derivatives, Disclosure and Transparency, Mutual Funds
In “‘Swaps’ Add a New Risk” (February 7, 2011), Wall Street Journal reporter Ari I. Weinberg writes that little is known about the use of over-the-counter derivative instruments by mutual funds and that the risk of non-performance by a swap counterparty must be considered. Having worked on several derivative trading desks, I have direct experience… Continue Reading