Clive Bastow, Senior Consultant, firstname.lastname@example.org
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?
Nicolas Corry, Managing Director, email@example.com
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?
http://bloomberg.com/news/2014-09-24/pimco-total-return-etf-drawing-sec-scrutiny-wsj-reports.html Key takeaway for auditors are suppression, transaction and trade reporting, valuation and control