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Growth of Alternative Trading Venues poses IPV challenge, submission risk

Growth of Alternative Trading Venues poses IPV challenge, submission risk

Clive Bastow, Senior Consultant, clive.bastow@skadilimited.co

In recent months a growing number of Alternative Trading Venues have appeared, particularly for traders of Corporate Bonds. To an extent this is an inevitable evolution of what has traditionally been a voice brokered market. It is merely following the path laid out by equities over the last 10 years or so. In the field of equities unchecked growth of alternative venues led to instances of platforms paying for prices, providing preferential access to certain customer types, and allowing increasing numbers of complex and potentially abusive order types. We would hope that lessons have been learned from the mistakes of the past. Controllers at Financial Institutions need to examine whether trading on Alternative Trading Venues have been captured by their New Product Approval processes or similar. They need to ask themselves what controls they have in place to prevent traders from influencing valuation processes such as IPV and collateral valuation, and whether contributing prices to these venues could result in a benchmark contribution. Does the accessibility of Alternative Trading Venues provide opportunity for their traders to side step Trade and Transaction Reporting obligations and therefore suppress their trading activity from the wider market place?

Dollar strength poses Trader Funding Risk

Dollar strength poses Trader Funding Risk

Nicolas Corry, Managing Director, nicolas.corry@skadilimited.co

http://www.bloomberg.com/news/2014-10-01/has-dollar-strength-only-just-begun-.html The continued strength of the US$ has caught the headlines. The charts of Brazilian Real, Korean Won and Singapore Dollar confirm that the move is universal. Continued weakness in world currencies raises the risk of rate increases to protect their trading level with the dollar. Auditors should review cash management processes as part of their continuous assessment of businesses. They must ask themselves what line of sight do control functions such as Treasury and Market Risk Management have over funding versus assets? Can these areas distinguish between duration of funding positions or are traders exposing the firm to short term funding risk? During the Asian Crisis of 1997 equity derivative businesses which funded using overnight rates learned the hard way about how fast Central Banks move to defend their currencies. Juniorisation of trading staff since the recent Credit Crisis mean that few will remember the lessons of the Asian Crisis.