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Courtsiders at Tennis – why not the financial markets?

Courtsiders at Tennis – why not the financial markets?

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

At 22 years of age, Dan Dobson was paid to travel the world and watch tennis. Was he a reporter? Well, kind of. Last year Dan was arrested at the Australian Open tennis tournament for Courtsiding. Dan’s job was to report back live data to betting syndicates on how the tennis was progressing at the tournament. The aim being to provide the gamblers with an edge by reporting data faster than it could be received by the counterparties they were betting against. In an interview with the BBC Dan explained how he reported information. Using a simple device in his trousers he relayed scores back to London. Pressing one for Djokovic, two for Murray for example.

This story intrigues us at Skadi Limited. Often in the world of sports betting there are a number of parallels with the financial markets, and indeed a number of participants in the financial markets also play the sports markets in their spare time. Therefore it is plausible to see that a practice in one market could be imported to another. The question is whether “Marketsiding” is a plausible risk, and if so what form might it take?

We consider it to be a plausible risk as the practice is simple, and more complex practices/frauds have been unveiled which have similar goals. Consider the Merrill Lynch Squawk Box case of 2009 where retail brokers permitted day traders to listen in to orders they held, by simply leaving their telephones next to the squawk box for the trading day. Nowadays we receive warnings about the risks of using webcams. How much would a syndicate pay for access to the webcam on the desk of the head of block trading at Barclays one wonders?

There are also interesting parallels between Courtsiding and some of the activities of High Frequency Traders. Courtsiders attempt to relay information before it reaches the broader gambling market. High Frequency Traders invest significant capital in infrastructure and feeds to process orders faster than the broader market. But more simply could syndicates place persuade personnel located on a dealing floor, to relay information on orders held by a trading desk, allowing parties to position to take advantage of that flow? It surely couldn’t happen, could it…?

Issuance Issues #bankculture #issuance

Issuance Issues #bankculture #issuance

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

Last week Bloomberg writer Zeke Faux’s piece on Death Spiral Financing allowed a small chink of light to shine on the Private Issuance market. Death spiral structures are not new, and generally appear to be above board, but it is hard not to recognise the risk and damage they pose to investors in a company that chooses to source finance in such a manner. Private transactions tend to be by their nature private. They tend to be structured between (one hopes) sophisticated parties that are able to shoulder the burden of reduced disclosure and consequent increased risk. One wonders though what consideration is given to other stakeholders? Smaller shareholders, employees, customers, suppliers to mention a few.

In the Public Issuance market recent reporting by the Financial Times offers insight into the activities which may occur during the book building process. While activities such as order inflation may be known, the allegations made regarding fake order creation to win more paper, will shock many.

It seems clear that Control Functions should review their organisations’ issuance procedures, with careful attention given to where business lines meet, such as at Syndicate and in the Private market, where transactions are handled together between banking and markets. These areas represent gap risk, as consideration may have been given to each business individually, but not together as a whole.

 

Hong Kong Liquidity Risk

Hong Kong Liquidity Risk

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

http://www.bbc.co.uk/news/business-29406712 The protests in Hong Kong come at a time when Banks and Trading Houses are determining strategies and budgets for the forthcoming year, and bonus discussions move into a final phase. There is therefore a strong incentive for traders to cut exposure to the market to protect their compensation for the year. As houses will likely find themselves making towards the exits at the same time, volatility will increase as liquidity is limited. We expect that Market Risk Managers will pay close attention to house delta, gamma and vega exposure, however, they must ask themselves what line of sight do they have over alterations to the static data underlying the risk reports they compile? Great challenge also resides in the areas of Product Control and Independent Price Verification. If traders find themselves unable to physically reduce exposure, the temptation will exist to adjust static data to give the impression of reduced exposure. Input Volatilities, Credit Spreads, Dividend Yields all represent subjective risk inputs to the model. Reduced liquidity also creates problems for control staff performing price testing. Product Controllers should be asking where does this mark come from? Does the mark reconcile to other instruments within the bank?

Germany finds evidence of forex rate-fixing

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