Clearing houses take a backward-looking view on risk. 2017 was the year of lowest average volatility ever but, as this rolls off the back of the look back period, will margins increase?
It has always stuck in the back of my mind. With the firm and increasing bond vol (MOVE), and the more recent massive moves in european rates as wel as US equities, could a scenario like this be (or become) in play? Also given the sheer size of the otc derivatives on the balance sheets of various banks. It seems more relevant than ever.
How, other than the vol indices mentioned could/should we track or gauge this?
Pre covid the market looked very short of margin - which should be bearish... but essentially we have extended government guarantees to not just corporates but the LTCM like hedge funds that should.have gone to.the wall.... all via clearinghouses.... so it is interesting - but until guarantees getted pulled not valuable... so again politics is more important that markets here
Hi, I remember reading the posts on your website about clearing houses and margin req’s changing due to volatility: https://www.russellclarkim.com/marketviews/russell-clark/2019/11/clearing-houses-and-initial-margin
It has always stuck in the back of my mind. With the firm and increasing bond vol (MOVE), and the more recent massive moves in european rates as wel as US equities, could a scenario like this be (or become) in play? Also given the sheer size of the otc derivatives on the balance sheets of various banks. It seems more relevant than ever.
How, other than the vol indices mentioned could/should we track or gauge this?
Thanks for doing this, it’s incredible valuable.
I will also do a post on clearinghouses in the near future...
Pre covid the market looked very short of margin - which should be bearish... but essentially we have extended government guarantees to not just corporates but the LTCM like hedge funds that should.have gone to.the wall.... all via clearinghouses.... so it is interesting - but until guarantees getted pulled not valuable... so again politics is more important that markets here