Should the Whale be Beached?
With this morning’s news of a 2 Billion dollar hedging loss at JPMC by the “Whale” in London the US regulators who have been fending off the banking industries’ attempts at watering down the Volcker rule for SIFIs are feeling a bit better…..
The fact is that this type of proprietary trading is immensely profitable as well as a significant risk. Who’s money is at risk is at the heart of the controversy and in spite of improved risk management the speed with which other players can offeset your hedge and change the dynamics of your position is a risk in itself. This just further strengthens the case for a real time risk infrastructure with complete ad hoc insight into your data. Without it you are increasingly at risk. This is a compelling and simple message for SAP to bring to our clients who are currently suffering from not enough hours in the day to deal with regulatory demands and compliance issues.
The tactical compliance issues that can be must be automated, anything less will put the bank out of business. Once the daily noise is automated then you can deal with the macro issues like hedging by providing an intraday view of liquidity risks and embedding automated alerts into your strategy to give you more advanced warning and the ability to hedge you hedge.
The Volcker rule in Dodd Frank will attempt to beach the whale, it will come down to how the whale is defined in the end by the regulators and the lobbyists and behavior will adjust accordingly. We must support our clients’ efforts to rapidly adapt to those changes better than anyone else….