Talking Point

  • You say voluntary, I say mandatory...

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

    An old school friend with a great business idea comes to you and three other similarly well-off school friends and asks if you'd lend him money for his business. He needs US$40,000 and expects he can pay it back in one year with 10% interest. The four of you agree to lend him the money, each one giving US$10,000.

    In .......

    Talking Point 24 January 2012

  • Should triple-A be the only way for structured finance?

    Andrew South, senior director and head of European structure...

    Investors in structured finance securities remain highly focused on triple-A ratings - and, consequently, so do issuers. But with banking system and sovereign risks recently increasing, triple-A ratings are becoming more difficult to achieve. In our view, market participants also tend to pay too little attention to what a triple-A rating for a given security actually means, based on the .......

    Talking Point 11 January 2012

  • When Cayman directors fail to act

    Richard Ruffer, svp at Walkers Management Services in the Ca...

    The recent US Bankruptcy Court decision in In re Zais Investment Grade Limited VII, No. 11-20243 (Bank. D. N.J. August 26, 2011) raises troubling concerns for investors in CDOs. The decision rejected a motion to dismiss an involuntary bankruptcy order entered against a Cayman Islands CDO.

    As a result, the case opens the door for struggling Cayman CDOs to be .......

    Talking Point 22 September 2011

  • Rating the ratings

    Blaise Ganguin, chief credit officer at S&P, looks a...

    Amid all the discussion about the role of credit ratings in financial markets, their actual performance has often been misunderstood. Ratings are forward-looking opinions of relative creditworthiness, so their performance can be measured by how well correlated they are over time with defaults and by the rate at which they change.

    The key test is whether ratings have, generally speaking, .......

    Talking Point 10 June 2011

  • 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
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