Talking Point

  • Three misconceptions about issuer-paid ratings

    CapitalFusion Partners mds Malay Bansal and John Joshi argue...

    The issuer-paid model for ratings is widely seen as one of the most significant aspects of the process that needs to be reformed. Issuers select which NRSROs will rate their deal and they pay the rating agencies rating their deals. Many blame this dynamic for causing a conflict for the agencies and enabling ratings-shopping by issuers.

    This is perhaps seen .......

    Talking Point 27 May 2011

  • CVA: beyond compliance

    Basel III has ushered in new rules for calculating credit va...

    The debate surrounding the new capital charge for CVA continues apace, with regular murmurs of how the risk management community is getting to grips with the new regulation due in 2013. A survey by Fitch Solutions in April this year, for example, revealed that among 200 credit and counterparty risk practitioners, only 32% believed the new regulation will assist them .......

    Talking Point 18 May 2011

  • Banning naked CDS shorts: a bridge too far

    Anu Munshi, partner at B&B Structured Finance, outli...

    First a proposal in the US in 2009 to ban CDS trading unless investors owned the underlying bonds or loans, which was fortunately defeated by the US Senate in 2010. And now the European Parliament has voted to push for a ban on naked short selling of CDS linked to sovereign debt.

    We've read the widespread criticism of naked short .......

    Talking Point 15 March 2011

  • Criteria critiqued

    John Uhlein, managing principal of Grenadier Capital, outlin...

    In a 39-page report entitled 'Request for Comment: Bond Insurance Criteria', dated 24 January 2011, S&P endeavors to set forth "new" criteria for rating bond insurance companies (see SCI 28 January). This is a laudable effort to impose order to an industry that has not been well understood and imploded during the financial crisis.

    Today only one company, Assured Guaranty, .......

    Talking Point 8 February 2011

  • The industry standard

    Sapient Global Markets risk analytics director Jor Molchan a...

    The market volatility and numerous counterparty defaults experienced since September 2008 have shown the limitations of traditional credit risk monitoring techniques.

    Credit lines welcome exposure until the cap is reached; thereafter exposure is simply refused. In an industry where risk is routinely 'dollarised', exposure caps fall far short of the mark.

    Collateral management has proven itself to be too reactive .......

    Talking Point 28 January 2011

  • Rating agency role in Euro ABS discussed

    The role of rating agencies in the European structured finance market has changed, according to panellists at a Fitch-hosted conference in London last Friday (21 January). The conference also focused on the outlook for the sector during the year ahead.

    Will Davies, svp at PIMCO Europe and a panellist at the conference, commented on how recent counterparty criteria issues are .......

    Talking Point 24 January 2011

  • Roundtable discussion

    The importance of loan-level data for ABS investors

    Large amounts of aggregation and the absence of loan-level data have traditionally made determining the true value of assets in the ABS market difficult. S&P recently held an event at the London Stock Exchange ("Gearing up for European loan-level data") and chaired a round-table session with other market participants to discuss the impact that the provision of loan-level data may .......

    Talking Point 9 November 2010

  • Valuators prepare for regulatory measures ahead

    A panel discussion hosted by Interactive Data last week examined the findings of a new A-Team Group survey, 'Valuations in European Buy-Side Institutions'. The survey focused on valuation issues across the OTC derivatives market and how valuations will be impacted by upcoming regulatory and accounting changes.

    In terms of financial institutions' preparations for the regulatory changes ahead, BNY Mellon Asset .......

    Talking Point 26 October 2010

  • Price talk

    Structured finance and derivatives valuation issues discussed

    The 2010 SCI Guide to Pricing and Valuation. As with the highly popular 2009 Guide, the 2010 edition is downloadable in PDF form from the SCI website here; however, SCI subscribers will receive a printed copy as part of the October issue of the SCI magazine (current and former triallists can download a PDF of the .......

    Talking Point 15 October 2010

  • Re-thinking valuation - part 3

    In the third article of a series on structured credit valuat...

    Simple bond versus Monte Carlo
    In the previous column (see SCI issue 197), I discussed the importance of understanding the meaning and use of a 'price' and developing a robust model risk framework for structured credit portfolios. Modelling of these products presents significant practical challenges, given the complexity of their structures and underlying risks (market, credit and liquidity).

    Black-box approaches, which .......

    Talking Point 13 October 2010

  • Basel 3 - securitisation opportunity?

    Mark Davies of Cedar Analytics hopes that high quality ABCP...

    In the hubbub surrounding the newly published 'Basel 3', regulated entities run the risk of losing sight of a couple of additional pieces of the requirement as published under BCBS157 - the snappily titled 'Enhancements to the Basel 2 Framework' - in July 2009. While the requirement to comply with Basel 3 en masse has an eight-year timescale attached to .......

    Talking Point 6 October 2010

  • Investor caution remains in recovering market

    Morrison & Foerster partners Peter Green and Jeremy Jennings-Mares discussed at a seminar the firm hosted on 23 September the outlook for, and investor confidence in, the European securitisation market.

    Green began the discussion by outlining recent activity and signs of recovery in the market. "There are signs that the market is slowly recovering in some areas and, for the .......

    Talking Point 29 September 2010

  • Clearing foundation

    Preparations in place for OTC transparency

    ISDA's 2010 Regional Conference in London yesterday focused on, among other areas, global developments in OTC derivatives clearing. With the industry continuing to deliver on central clearing commitments, both traders and clients are preparing for the coming legislative impact on OTC trades.

    In regards to both inter-dealer clearing and client clearing, LCH.Clearnet md Simon Grensted said during one conference session: .......

    Talking Point 22 September 2010

  • Re-thinking valuation - part 2

    In this second column in a series of articles on structured...

    Valuation and model risk
    What is the price of a security?
    In a formal sense, a price is the exchange value at which buyers and sellers agree to trade a security. In an open market, we generally refer to this value as a market price.

    When we are pricing a portfolio, ideally we are attempting to estimate the portfolio's price, should it .......

    Talking Point 18 August 2010

  • Re-thinking valuation

    In the first in a series of articles on structured credit va...

    Pricing models for structured credit securities have often been overly simplistic, with many institutions placing too much reliance on dealer quotes, on simple models based on credit ratings and on top-down views of collateral portfolios. As liquidity dried up in the markets, many practitioners were left in the dark, not able to reliably determine the value of their portfolios or .......

    Talking Point 7 July 2010

  • Concerns continue

    Risk retention no solution for ABS

    The Senate and House bill requirements for securitisers to retain 5% of the credit risk from pools of securities along with the SEC's proposal in April to have firms hold 5% of each class of ABS is still causing debate among industry participants, according to panellists at an IQPC ABS Summit in New York.

    The 5% retention requirement made its .......

    Talking Point 30 June 2010

  • Open to interpretation

    Searching for transparency and liquidity

    The twin themes of transparency and liquidity were reflected upon in many of the panels at this year's IMN Global ABS conference. However, interpretations of what the terms actually represent varied.

    Jim Irvine, head of structured products & advisory at Henderson Global Investors, observed: "I would say that, aside from certain transactions in Italy and perhaps Spain, data is available .......

    Talking Point 16 June 2010

  • Changing times

    CMBS sees increasing mezzanine focus

    A mezzanine focus and a competing origination market is how market participants described the current US CMBS market compared to previous years, according to panellists at the CRE Finance Council's annual convention in New York.

    As one panellist noted, the market has become divided into the "have's" and "have less". In the past, what was needed to get deals done .......

    Talking Point 16 June 2010

  • Waterfall transparency

    Tania Fago, senior product manager at Quantifi, comments on...

    On 7 April 2010 the SEC proposed rules to amend the offering process, as well as tighten the disclosure and reporting requirements for ABS. The proposed changes are designed to increase transparency and thereby improve investors' understanding of these financial products, which have traditionally been more opaque.

    Specifically, the SEC proposals would:

    • require the filing of a computer programme .......

    Talking Point 9 June 2010

  • Achieving accurate VaR calculations

    Richard Bennett, EMEA president of Razor Risk Technologies,...

    Following the financial crisis of 2007/2008, the Value at Risk (VaR) calculation method - arguably the most broadly utilised method of risk management - has come under increasing levels of scrutiny for its failure to provide accurate results. This paper examines the reasons behind the perceived failure of risk management up to and during the economic downturn. It also outlines .......

    Talking Point 5 May 2010

  • Sound and fury

    Tales told, but little signified

    Much has already been written about the appearance of "Goldman Sachs" before the "Senate" in the 18 hours since it actually happened. There may be little to actually come from this very public event, but there were at least a few stand-out moments in the day's seemingly endless proceedings.

    While most of the mainstream press had been heralding yesterday's appearance .......

    Talking Point 28 April 2010

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