Treasury may tighten grip on risky derivatives
- Thread starter const451
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Not exactly news but it's a move for the better. The more transparent the OTC market is, the more efficient it will be. It will be then more difficult to seek alpha thus more need for better high freq trading algo.
CDS will go the way of common man stock, it will be fun to watch. I look forward to the change.
CDS will go the way of common man stock, it will be fun to watch. I look forward to the change.
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A crisis is perfect time for some politicians to shine. It is good to point fingers at somebody else for a change. These days financial markets are the perfect target. You can demonize Wall Street and you will gain votes.
The next step is to demonize the actual products. This "CDS stuff" is out of control, we will ban it. Or even better, we will force sellers to keep as much liquidity as needed in a doomsday scenario. Since no company can meet 100% loss correlation, then we close down the specific market.
Next we move to structured finance. We look at a deal and assume that all accounts default in first month. Done with that.
Slowly, we can take care of most derivatives.
Would regular companies have avenues to liquidity, hedge risks etc? No, but it does not matter since derivatives are weapons of mass destruction like Buffet always says. But Berkshire has quite a few derivatives on their books, investments in GS, GE capital. Hmmm ...
Regulation is needed in some markets however I am not sure if the right people are doing it.
The centralization process should start from private sector perhaps with some incentives. Otherwise it is just imposed, a decisive intrusive factor in the markets.
The next step is to demonize the actual products. This "CDS stuff" is out of control, we will ban it. Or even better, we will force sellers to keep as much liquidity as needed in a doomsday scenario. Since no company can meet 100% loss correlation, then we close down the specific market.
Next we move to structured finance. We look at a deal and assume that all accounts default in first month. Done with that.
Slowly, we can take care of most derivatives.
Would regular companies have avenues to liquidity, hedge risks etc? No, but it does not matter since derivatives are weapons of mass destruction like Buffet always says. But Berkshire has quite a few derivatives on their books, investments in GS, GE capital. Hmmm ...
Regulation is needed in some markets however I am not sure if the right people are doing it.
The centralization process should start from private sector perhaps with some incentives. Otherwise it is just imposed, a decisive intrusive factor in the markets.
bob
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The real questions in my mind are how you define the universe of "derivatives, " how your electronic representation system copes with novel products, what the law is concerning derivatives that the system isn't set up to handle, how the regulatory system evaluates the efficacy and quality of hedges, and who has access to the information.
No problem--they should be able to settle all that in a month or two. Right.
No problem--they should be able to settle all that in a month or two. Right.
alain
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Bob, I was thinking on a similar direction, how to represent this sorts of contracts electronically for trading purposes in an Exchange. From a pure computational standpoint, this is fertile territory for domain specific languages and functional languages.
This paper written in 2000 seems like a start:
http://research.microsoft.com/en-us/um/people/simonpj/papers/financial-contracts/contracts-icfp.htm
This paper written in 2000 seems like a start:
http://research.microsoft.com/en-us/um/people/simonpj/papers/financial-contracts/contracts-icfp.htm
Right, it is not the first publication on the topic. I do not see how they are going to enforce it electronically. Or, they are going to track transactions and audit afterwords.
