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Template:M intro isda Party A and Party B: Difference between revisions
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Template:M intro isda Party A and Party B (view source)
Revision as of 19:12, 30 November 2023
, 30 November 2023→Is it bilateral though?
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We should not let ourselves forget: beyond the cramped star system of interdealer relationships, there is a boundless universe where one party is a “dealer” and the other a “customer”. This is the great preponderance of all ISDA arrangements. These roles are different. They do not depend on who is long and who is short, or who pays the fixed rate and who the floating. In each case there is a ''customer'' and a ''dealer''. | We should not let ourselves forget: beyond the cramped star system of interdealer relationships, there is a boundless universe where one party is a “dealer” and the other a “customer”. This is the great preponderance of all ISDA arrangements. These roles are different. They do not depend on who is long and who is short, or who pays the fixed rate and who the floating. In each case there is a ''customer'' and a ''dealer''. | ||
In recent years — ironically, just as the “dealer” vs “customer” dynamic has become more pronounced<ref>After the [[GFC]], bank proprietary trading fell away to almost nothing.</ref> — the global regulatory-industrial complex,<ref>This label is not just sardonic: there really is a cottage industry of of “regulatory change management professionals” who owe their last decade’s livelihood to ''accommodating'' quixotic regulatory initiatives like this. They are a powerful lobby with a direct interest in maintaining the rate of regulatory churn.<> still fighting last decade’s war, has forged rules which overlook this. | In recent years — ironically, just as the “dealer” vs “customer” dynamic has become more pronounced<ref>After the [[GFC]], bank proprietary trading fell away to almost nothing.</ref> — the global regulatory-industrial complex,<ref>This label is not just sardonic: there really is a cottage industry of of “regulatory change management professionals” who owe their last decade’s livelihood to ''accommodating'' quixotic regulatory initiatives like this. They are a powerful lobby with a direct interest in maintaining the rate of regulatory churn.</ref> still fighting last decade’s war, has forged rules which overlook this. | ||
A notable example is the coordinated worldwide approach to regulatory margin. | A notable example is the coordinated worldwide approach to regulatory margin. | ||
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Daily mark to market moves are mainly noise. Yet this is what we collateralise. The signal emerges over a prolonged duration. Over the short run posted collateral can, as we know a system effect: if I double down on an illiquid position, it will tend to rise, and I will get more margin, and — this is the story of [[Archegos]]. | Daily mark to market moves are mainly noise. Yet this is what we collateralise. The signal emerges over a prolonged duration. Over the short run posted collateral can, as we know a system effect: if I double down on an illiquid position, it will tend to rise, and I will get more margin, and — this is the story of [[Archegos]]. | ||
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The increased systemic exposure of banks failing — which is what the margin regs were designed to address — is not caused by the banks themselves, but by their client exposures. Client exposures in turn are a function of client failures, which are in turn a function of leverage | The increased systemic exposure of banks failing — which is what the margin regs were designed to address — is not caused by the banks themselves, but by their client exposures. Client exposures in turn are a function of client failures, which are in turn a function of leverage | ||
Their failure shouldn't, typically, be a systemic risk unless their unusually size, interconnectedness or unintended system effects ''make'' them systematically important, in which case they should be regulated if they are systemically important, and made to hold capital, and (b) they have the market position and bargaining power to negotiate margin terms. | Their failure shouldn't, typically, be a systemic risk unless their unusually size, interconnectedness or unintended system effects ''make'' them systematically important, in which case they should be regulated if they are systemically important, and made to hold capital, and (b) they have the market position and bargaining power to negotiate margin terms. | ||
===Swaps are usually synthetic loans=== | ===Swaps are usually synthetic loans=== | ||