Behind the Swap
The Broken Infrastructure of Risk Management and a Framework for a Better Approach
- 304 páginas
- 11 horas de lectura
Andrew DeJoy’s examination of post-trade processing in swaps and derivative markets highlights the inherent risks and proposes solutions to mitigate them. He advocates for a safer and stronger financial system for all stakeholders. A notable incident in August 2020 involved Citibank accidentally sending nearly $900 million of its own funds, with many recipients failing to return the money, leading to a court ruling in their favor. This error reflects broader issues within the global financial services industry, such as manual data entry, outdated technology, inadequate training, and incompatible systems. Years of neglect by regulators and financial institutions have resulted in a complex, inefficient, and inaccurate infrastructure that struggles to meet modern market demands. The book sheds light on recent banking blunders, including Barclay’s $678 million clerical error and Citibank’s fat-finger Flash Crash, which caused an 8% decline in the Swedish stock market. It also connects to Credit Suisse’s $5.5 billion loss linked to its trades with Archegos. The problems, while evident, are often difficult for financial institutions to acknowledge, resulting in billions lost annually due to labor costs, system maintenance, and unreturned funds. For regulators, the current system hinders tracking systemic risk and falsely inflates the perceived stability of the financial system, while creating opportunities for misconduct such as ro