Borrowing Against a Portfolio Leaves Little Margin for Error By IAN SALISBURY Lured by ultralow interest rates and a recovering stock market, investors have rediscovered a risky investing tool: the margin loan. Margin accounts, which allow investors to borrow against the value of the securities in their brokerage portfolios, hit $331 billion at the end [...]
When people talk about the risk of ETFs and ETNs, much of it has to do with the collateral that underlies different parts of these investments. There are many products involved in the ETF and ETN market and much of the stability of product offerings depends on what backs the issue. In this article we [...]
The Volcker Rule has shaped up to be one of the most contentious pieces of financial legislation ever devised. The basic idea is to reduce bank risk but the after-effects just keep coming. Given the impossibly bad timing of JPMorgan’s loss on CDS positions, the arguments in favor of a strong Volcker Rule just got [...]
Finadium has released a report on Central Securities Depositories and the business of collateral management. Central Securities Depositories (CSDs) have traditionally focused on the business of custody as background utilities in financial markets. But with the growth of for-profit stock, options and futures exchanges, CSDs are now evaluating their commercial opportunities. This is an important [...]
The likelihood that ratings agencies will downgrade bank debt in the coming weeks and months is bad news for the banks themselves, who will be looking at needing to raise substantial capital in order to meet collateral calls. Bank counterparties may also need to close out derivatives contracts altogether if ratings fall too low. The [...]
We had a close read of the European Parliament’s adopted regulations on short selling and credit default swap disclosure and a few things popped out. Meanwhile, Dodd-Frank has mandated that the SEC study disclosure of short positions; the results are expected to be public before July. We see some very different approaches here that promise [...]
The idea of cloud computing, where one center of computers is shared among many users at a theoretically low cost, is coming to the custody business. Let’s call it “Custody in the Cloud.” The technology aspects of this service are fairly straight-forward, notwithstanding the incredibly important security aspects of cloud computing in general. The business [...]
Pensions and Investments recently ran a story that the Los Angeles City Employees Retirement System (LACERS) is suing its former consultant, Pension Consulting Alliance (PCA), for failing to supervise a securities lending program that led to losses. The program itself was run by Northern Trust, which is both LACERS’ custodian as well as their lending [...]
We have been writing this week about a speech given on April 27th by Paul Tucker, Deputy Governor of the Bank of England, entitled “Shadow banking: thoughts for a possible policy agenda.” While there are many points and comments to make here (yesterday we talked about money market reform), in this post we want to [...]
Bank of England Deputy Governor Paul Tucker spoke Friday at a conference in Europe on Shadow Banking, and released the first semi-official ideas about regulating money market funds as part of the Shadow Banking industry. While we strongly feel that money market funds are not shadow banks, the Financial Stability Board, directors of the current [...]
