Pretrade and risk-based clearing

With a number of regulatory determinants still evolving, the industry has to get operationally ready for new requirements governing over-the-counter (OTC) derivatives. For most market participants, those OTC derivatives having to be standardised by the European Securities and Markets Authority in Paris will require central clearing. Other transactions may need enhanced valuation and collateralisation procedures. The few lucky investors out of the scope of the new regulatory requirements (pension funds in relation to hedging transactions for a transitional period of at least three years and non-financial counterparties with a portfolio of OTC derivatives below a clearing threshold still to be defined) will have to implement monitoring procedures to check that they continuously fulfil the exemption prerequisites. Additionally, there may be a trade-off for investors between full compliance with market standard operational infrastructure and liquidity and pricing of transactions. This paper discusses the buy-side requirements and banks’ and custodians’ services for investment in OTC derivatives.

Credit default swaps and banks

Insurance (MIC: 8.2 SIC: 6331 NAIC: 524126)American International Group is a holding company which, through its subsidiaries, is engaged in a range of insurance and insurance‐related activities in the U.S. and abroad. Co.'s primary activities include both General Insurance and Life Insurance & Retirement Services operations. Other significant activities include Financial Services and Asset Management. Co.'s Life Insurance & Retirement Services subsidiaries offer a range of insurance and retirement savings products. Insurance‐oriented products consist of individual and group life, payout annuities, endowment and accident and health policies. Retirement savings products consist generally of fixed and variable annuities.

The risk of litigation remains of concern to midwives, their practice partners, employers, and malpractice insurance providers. Closed claims analysis is a method of examining risk patterns and behaviors in lawsuits, including those involving health care practices. The purpose of this investigation was to evaluate claims brought against midwives, with the intent of developing strategies to decrease the incidence of litigation. Data were collected in joint meetings with members of the American College of Nurse-Midwives (ACNM); the American Association of Birth Centers; the American International Group (AIG), a major malpractice insurer for certified nurse-midwives/certified midwives (CNMs/CMs); and Contemporary Insurance Services, an independent insurance agency that has worked with AIG to facilitate the writing of malpractice insurance policies for CNMs/CMs. The purpose of the meetings was to review 162 litigation cases that involved midwives insured by AIG and had been closed between the years 2002 and 2011. Follow-up analyses of data and reporting of results were performed by the authors, who are members of the Professional Liability Section of the ACNM Division of Standards and Practice. Findings reflected 7 major categories of liability risk ranging from the most prevalent (ie, fetal/newborn complications or death) to the least prevalent (ie, attending a vaginal birth after cesarean). Data also were examined regarding the highest amounts incurred in court decisions or pretrial settlements because they were related to types of adverse outcomes that occurred. Recommendations for improving clinical practice and avoiding litigation based on findings from the closed claims analysis include, but are not limited to, the need for thorough and accurate documentation in practice, appropriate and timely consultation and collaboration, and the presence of practitioners whose clinical skills match the level of care assessed to be necessary for each woman for whom care is offered.

Around the time the Bretton Woods exchange rate system was breaking down in global markets, interest rates in many local markets became much less predictable, leaving businesses and investors exposed to far more interest rate risk than they were familiar with. The financial community began looking for ways to hedge and speculate this risk. To address this need to hedge interest rate risk, the futures exchanges in Chicago and London (and other financial centers) began offering interest rate contracts in addition to their historically traded commodity futures. In 1981, IBM and the World Bank entered into the first interest rate swap, soon followed by a foreign exchange swap. As the Black-Scholes model and other options pricing models became generally accepted, options on interest rates became widely traded in deep, liquid markets. Decades later, the interest rate derivatives markets, both exchange traded and over the counter (OTC), have grown into a huge global marketplace (notional amounts in billions of U.S. dollars equivalent). (See Exhibit 10.1.) These so-called plain vanilla interest rate derivatives totaled almost U.S. $355 trillion at the end of 2006, and there are many other interest rate derivatives that the Bank for International Settlements (BIS) does not report statistics on. At first glance, the BIS total appears to be roughly 10 times global gross domestic product. However, some OTC derivatives are double counted (e.g., each side of the same risk may be on the books of two banks; in practice this is difficult to net). A significant percentage of the total (exchange traded plus OTC) is a hedge against other interest rate risk but does not get netted in the statistics just cited. Most important, the numbers shown reflect notional amounts (i.e., the amounts used to as a benchmark for determining the dollar value of interest rate payments). The market value of these instruments is much smaller. Whole books have been written on each type of interest rate derivative, but the next section provides a sampling of the common types of interest rate derivatives you are likely to see on a broker-dealer fixed income trading floor.

The use of margin requirements as a potential policy tool for controlling sudden stock price changes and market volatility has attracted considerable attention in the developed stock markets. However, no consensus has emerged regarding the significance of the impact of changes in margin requirement of the stock market. The existing analyses are extended to test the impact of changes in margin requirements on stock prices in an emerging stock market. Using recent data from the Stock Exchange of Thailand, margin requirements are demonstrated to have an important impact on the behaviour of stock prices. Increases (decreases) in margin requirements usually lead to a downward (upward) trend in stock prices. An interesting aspect of the result is the apparently asymmetric nature of the response of stock prices to changes in margin requirements. The market appears to respond immediately and forcefully to a decrease in the margin requirements; whereas the response to an increase in margin requirements is much slower and weaker.

•Most recently valued at $648 trillion, the over-the-counter (OTC) derivatives markets are vast, global and systemically important. About 90 per cent of these transactions are agreed on International Swaps and Derivatives Association’s (ISDA’s) standard terms, which provide for disputes to be resolved by the courts of England and Wales, or New York (though some parties amend this drafting). •This article presents research into all the available decisions of the English courts involving the ISDA standard terms. Analysis of this data demonstrates the courts’ capacity to provide a remedy for derivatives market participants in a very wide range of circumstances. It also shows how adjudication by the courts sustains the common law and increases transparency in the markets. •Triggered by the G20’s statements in the immediate aftermath of the crisis, regulators are now engaged in sweeping projects of reform in this sector. However, the impact of new rules on the courts has been overlooked. •The article argues that reforms targeting the OTC sector threaten to disrupt the role currently played by the courts in these markets. More specifically, a detailed examination of the internal rules of central counterparties (CCPs) suggests that requiring the bulk of OTC business to be cleared is very likely to reduce the numbers of OTC derivatives related cases coming before the national courts. Especially given regulators’ concern with transparency, the article concludes that these effects need to be considered urgently, and in detail, as part of the impact assessments accompanying regulatory reform.

To mitigate systemic risk, some regulators have advocated the greater use of centralized counterparties (CCPs) to clear Over-The-Counter (OTC) derivatives trades. Regulators should be cognizant that large banks active in the OTC derivatives market do not hold collateral against all the positions in their trading book and the paper proves an estimate of this under-collateralization. Whatever collateral is held by banks is allowed to be rehypothecated (or re-used) to others. Since CCPs would require all positions to have collateral against them, off-loading a significant portion of OTC derivatives transactions to central counterparties (CCPs) would require large increases in posted collateral, possibly requiring large banks to raise more capital. These costs suggest that most large banks will be reluctant to offload their positions to CCPs, and the paper proposes an appropriate capital levy on remaining positions to encourage the transition.

Securities Lending and the Untold Story in the Collapse of AIG

American International Group, Inc.—The Financial Crisis

Corporate Philanthropy ReportVolume 37, Issue 12 p. 10-11 Corporate Profiles American International Group Inc. First published: 09 November 2022 https://doi.org/10.1002/cprt.31453Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat No abstract is available for this article. Volume37, Issue12December 2022Pages 10-11 RelatedInformation

We find that the Bear Stearns rescue in March 2008 elicited a neutral or moderately favorable impact on bond prices. Conversely, we find that the Lehman Brothers failure (combined with news about Merrill Lynch and American International Group) in September 2008 elicited a pronounced negative impact. Bond prices of financial firms suffered more than bonds of nonfinancial firms following the Lehman failure. Our multivariate analysis shows that bonds issued by financial institutions that were previously presumed to be protected (based on bond rating and firm size) suffered more pronounced losses in response to the Lehman failure.

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In the first decades of the twenty-first century, people in the United States faced the worst financial disaster since the 1929 stock market crash and the 1930s Great Depression that followed it. Those years were hard times, with great fortunes lost for some, mass unemployment, soup lines, and grave uncertainty about the future. Rather than public utility companies failing as they did at the end of the 1920s, the fall 2008 stock market crash saw the collapse of huge privately owned lending and brokering corporations, including Indy Mac, Freddie Mac, Fannie Mae, Lehman Brothers, Citicorp, and American International Group (AIG). While blue chip giant CEOs were lobbying vigorously during the final months of the George W. Bush administration for massive government bailouts, myriad middle-class citizens who worked hard and planned for retirement lost their savings and security with repeated plunges in stock market values. Among the notoriously devastating days is September 29, 2008, on which approximately 1.2 trillion dollars vanished, with a dramatic Down Jones net loss, −777.68, the biggest negative net change in stock market history.KeywordsFinancial CrisisBlue CollarCulture IndustryConsumer SocietyStock Market CrashThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.