CDS dealers bow to pressure and commit to EU clearing counterparty

MIT 18.S096 Topics in Mathematics with Applications in Finance, Fall 2013
View the complete course: http://ocw.mit.edu/18-S096F13
Instructor: Yi Tang

This lecture is an introduction to counterparty credit risk, featuring credit valuation as well as the broad economic objectives of a financial institution. It also concludes the course.

License: Creative Commons BY-NC-SA
More information at http://ocw.mit.edu/terms
More courses at http://ocw.mit.edu

Financial Markets (2011) (ECON 252)

As the starting point for this lecture, Professor Shiller contrasts the view of economics as the theory of the allocation of scarce resources with the view of economics as the study of exchange. After a discussion of the difference between brokers and dealers, he outlines the history of securities exchanges from ancient Rome, to the Amsterdam Stock Exchange and Jonathan’s Coffee House in London, until the formation of the New York Stock Exchange. He complements this historic account with an overview of securities exchanges all over the world, covering India, China, Brazil, and Mexico. An example of a limit order book allows him to elaborate on the mechanics of trading at the National Association of Securities Dealers Automatic Quotation System (NASDAQ). Subsequently, he turns his attention to the growing importance of program trading and high frequency trading, but also discusses their impact on the stock market crash from October 19, 1987, as well as on the Flash Crash from May 6, 2010. When talking about fairness in financial markets, particularly with regard to the relation between private investors and brokers, he discusses the National Market System (NMS), the Intermarket Trading System (ITS), and consolidated quotation systems. He concludes this lecture with some reflections on the operations of dealers, addressing the role of inside information and the Gambler’s Ruin problem.

00:00 – Chapter 1. Exchange as the Key Component of Economic Activity
05:50 – Chapter 2. Brokers vs. Dealers
12:25 – Chapter 3. History of Stock Exchanges around the World
24:28 – Chapter 4. Market Orders, Limit Orders, and Stop Orders
36:15 – Chapter 5. The Growing Importance of Electronic Trading
44:46 – Chapter 6. Instabilities Related to High Frequency Trading
59:14 – Chapter 7. The Frustrations as Trading as a Dealer

Complete course materials are available at the Yale Online website: online.yale.edu

This course was recorded in Spring 2011.

For FRM (Part I & Part II) video lessons, study notes, question banks, mock exams, and formula sheets covering all chapters of the FRM syllabus, click on the following link: https://analystprep.com/shop/unlimited-package-for-frm-part-i-part-ii/

*AnalystPrep is a GARP-Approved Exam Preparation Provider for FRM Exams*

After completing this reading, you should be able to:
– Provide examples of the mechanics of a central counterparty (CCP).
– Describe advantages and disadvantages of central clearing of OTC derivatives.
– Compare margin requirements in centrally cleared and bilateral markets, and explain how margin can mitigate risk.
– Compare and contrast bilateral markets to the use of novation and netting.
– Assess the impact of central clearing on the broader financial markets.

Speakers:
– Thorsten Koeppl (Professor, Queen’s University)
– Agnieszka Smoleńska (Polityka Insight and European University Institute)

Recording of the online seminar on 30 April 2019.

More information: http://fbf.eui.eu/event/online-seminar-central-counterparty-clearing-and-systemic-risk/

Over the past decade, clearinghouses have subsumed the management of counterparty risk for many financial transactions. Regulators and supervisors thus face a new nexus for risk in financial markets, where these institutions have become too important too fail.
The European Union set out a comprehensive regulatory framework for Central Counterparties (CCPs) in recent years, in order to improve their ability to face possible financial distress. Reforms adopted in the last months aim to ensure a more consistent and robust supervision of CCPs in EU and non-EU countries to tackle emerging challenges.
In this context, the online seminar offers a primer on the features of CCPs as both insurers and sources of systemic risk.

* The views and opinions expressed in this video are those of the speakers or authors in their personal capacity and do not necessarily reflect the official position of the Robert Schuman Centre or the European University Institute. *