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BaFin's Hufeld calls for expanded oversight to address risks of big data and AI
Financial regulators will face new challenges arising from the "digitalization" of finance and may need to extend their oversight powers to include certain services provided by technology companies, according to Felix Hufeld, the president of Germany's Federal Financial Supervisory Authority, known as BaFin. Speaking on Oct. 4 at a fintech conference in Washington, D.C. organized by the Commodity Futures Trading Commission, Hufeld cautioned that traditional models for supervision and regulation need to be adjusted to address the impact of technology on financial services. Hufeld spoke primarily about the implications of big data and artificial intelligence, although he also pointed to distributed ledger technology as having the potential to transform the financial services sector.
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SEC focuses on swap regulation, pledges cooperation with CFTC
The U.S. Securities and Exchange Commission has scheduled an open meeting Oct. 11 to discuss one of several outstanding rulemakings necessary to complete the Dodd-Frank requirements for credit default swaps and other security-based derivatives. At that meeting, the five SEC commissioners will discuss whether to reopen the comment period on proposals related to capital, margin and segregation requirements for security-based swap dealers and major swap market participants. The meeting comes amid a recent focus on coordination with the Commodity Futures Trading Commission on swap regulations mandated by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The SEC has jurisdiction over credit default swaps based on individual companies, while the CFTC has jurisdiction over CDS based on indices.
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Another deal shows asset managers are targeting derivatives-based strategies
Victory Capital, a "multi-boutique" investment firm with more than $63 billion in assets under management, has moved to acquire derivative asset manager Harvest Volatility Management, a fund manager specializing in options-based investment strategies. The $300 million deal, which was announced on Sept. 24, is the latest example of investment managers targeting derivatives markets as an alternative source of returns. Harvest was founded in 2008, and has grown to about $12 billion in assets under management. The New York firm specializes in using equity index options for yield enhancement overlay, risk reduction, alternative beta and absolute return investment strategies.
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Exploring Data with AI
Judging by the level of activity in the banking industry, machine learning is on its way to being the next big innovation to hit the trading desk. Leading banks are diving into the field, building up their expertise in machine learning, running trials in their innovation labs, and exploring ways to use this form of artificial intelligence to transform the trading process. According to consulting firms that are tracking this trend, machine learning is already being deployed to help identify trading signals, optimize market-making, anticipate trade breaks, and improve the interaction between banks and their clients. The potential impact could be as big as the algorithmic trading revolution that swept through the industry a decade ago. Just as the use of algorithms led to ultra-fast quoting engines and more efficient execution of trades, machine learning could lead to another wave of automation as intelligent computers take over more elements of the trading process.
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Mapping Clearing Interdependencies and Systemic Risk
Advances in data analytics provide market regulators with better tools to understand connections within financial systems. One example is “interconnectivity” among participants in the global derivatives markets, and in particular, the clearinghouses that now process the majority of derivatives transactions worldwide.
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CEO Insight: A Full Set of CFTC Commissioners Is Good for Everyone
The summer is usually a quiet time here in Washington, D.C. but this year proved to be an exception. Right at the end of August, the Senate confirmed Dawn DeBerry Stump and Dan M. Berkovitz to fill the remaining two open spots on the Commodity Futures Trading Commission. This is very good news for the CFTC and for our industry. Dawn Stump brings decades of experience in public policy matters to the CFTC having held senior roles at the House and Senate Agriculture Committees as well as NYSE Euronext and FIA itself. Dan Berkovitz is equally qualified, having served as general counsel at the CFTC, a partner at the law firm of Wilmer Hale, and a senior staff lawyer for the Senate Permanent Subcommittee on Investigations.
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CLS and IBM Test 'Agnostic' Blockchain Platform
A proof-of-concept for a new blockchain-powered apps market backed by CLS Bank and IBM is nearing completion. If the tests of LedgerConnect continues to go well, developers say, they anticipate the platform will launch by the third quarter of 2019, and possibly sooner. Nine financial institutions, including Barclays and Citi, are participating in the proof-of-concept now under way. A number of vendors arealso taking part, including Baton Systems, Calypso Technology, OpenRisk, and Synswap. “At this point, we’re in the late stages of testing. Some of the banks have completed or gone through the late stages already,” said Ram Komarraju, managing director, technology for CLS, in London.
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Nasdaq Acquires Swedish Fintech Provider Cinnober
Nasdaq has acted to acquire Swedish fintech provider Cinnober for $190 million. The move bolsters Nasdaq’s offering of analytics, risk management and market infrastructure products.
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Bloomberg and Thomson Reuters Battle over Pricing Data
Bloomberg has gained an edge over Thomson Reuters in the business of providing transaction data for the rates markets. Bloomberg announced in July that NEX’s BrokerTec, arguably the most popular source of data on U.S. Treasuries trading, will now make its data available through Bloomberg instead of Thomson Reuters. The BrokerTec data will be combined with data on interest rate swaps from Tradition, a major inter-dealer broker, in a new bundle to be known as the Bloomberg Capital Markets Packa
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Sponsored Content
Offshore Collateral at B3, The Brazilian Exchange
Sponsored Content: Since August 2017, B3 has been authorized by local regulators to accept assets held offshore as part of its total required collateral. This applies to all products traded at B3’s platform. The previous model for offshore collateral had been restricted to specific listed contracts, thus this recent authorization has represented a significant turning point in terms of risk and operational management for international investors, particularly due to the potential interest of newcomers entering the Brazilian market
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