Home » Market Structure » The Structure of Multi-Factor Risk Models, SEFs, Nasdaq price cuts, and the carry trade

The Structure of Multi-Factor Risk Models, SEFs, Nasdaq price cuts, and the carry trade

Jason MacQueen, Tabb Forum, The Structure of Multi-Factor Risk Models, here.

This commentary reviews three methods used to build multi-factor equity risk models, highlighting their respective strengths and weaknesses. It concludes by describing a double hybrid approach that combines the best features of each method.

No one builds stock risk models because they care about stock risk; they are actually built to analyze and manage the risk of portfolios. This simple point turns out to have profound consequences, as we shall see.

OpenLink, SEF Compliance Amid Regulatory Turbulence, here.

The new world of executed swaps iscompelling firms to quickly find ways to cost-effectively manage their SEF interactionsas well as bilateral, exchange-traded andcleared transactions. Firms will have torevisit their relationships and workflows withcounterparties and other market players.They will also have to review their trading,risk management and compliance platforms,possibly revamping operations, workflowsand IT infrastructures.Ultimately, firms will have to stay ahead ofcompetitors as they strive for compliance in arapidly evolving regulatory landscape.

John McCrank, Reuters, Nasdaq’s plan for cutting prices infuriate rivals, here. Question at a talk I gave last week was essentially for things like the SIP feed there are well known technologies and algorithms that address he flows folks complain about, why aren;t they implemented? My  answer was you have to evaluate the use of technology in the context of the competitive economic environment (like the repricing offered by Nasdaq in this article). In isolation the decision to cooperate on a technical solution may not be the same as in a fully competitive market.

(Reuters) – Nasdaq OMX Group (NDAQ.O) is pushing to cut the fees it charges big customers that trade on several of its exchanges, a move that is arousing the attention of regulators and triggering accusations from rivals that the company is seeking to stifle competition.

In late October, Nasdaq told U.S. regulators that it wanted to offer cheaper trading for customers of one of its options exchanges, if their total volume of trading with all three of Nasdaq’s options exchanges was substantial.

Cardiff Garcia, FT Alphaville, Paul Tucker on the carry trade, here.

For anyone familiar with financial markets, a prevalent trading strategy and a key mechanism behind short-term price developments has long been the cross border, cross-currency carry trade.

But until recently, this was frequently met with disbelief in official circles because how could anyone bet rationally against uncovered interest parity — and neglected amongst academic macroeconomists. That myopia impoverished debates about the international monetary system, which in a world of freely flowing capital should be thought of as the international monetary And Financial system: IMFS not IMS.

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