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jerryking : derivatives   26

ICE Has Expanded Aggressively - WSJ.com
December 20, 2012 | WSJ | By LESLIE JOSEPHS And JACOB BUNGE.

In 2008, as the credit crisis revealed risks lurking in off-exchange markets for byzantine derivatives such as credit-default swaps, ICE struck a deal with a consortium of banks to form a clearinghouse to back up credit derivatives. The move anticipated regulators' mandate to clear such contracts to reduce systemic risk represented to the broader financial system.
bourses  commodities  derivatives  financial_system  clearinghouses  futures_markets  IntercontinentalExchange 
december 2012 by jerryking
Exchange Sale Reflects New Realities of Trading - NYTimes.com
December 20, 2012 | NYT | By BEN PROTESS and NATHANIEL POPPER.

(Idea for the Ontario Food Terminal and the OPMA??) the firm, IntercontinentalExchange, or ICE, an electronic operator of markets for derivatives and commodities, is buying the symbolic cradle of American capitalism, the New York Stock Exchange,for $8.2 billion....ICE was founded in 2000 by Mr. Sprecher, who began his career developing power plants. In the 1990s, he saw that many power companies and financial firms wanted to hedge their investments in energy with financial contracts, but the market for these contracts was disorganized and opaque.

Mr. Sprecher bought an obscure exchange for buying and selling electricity in Atlanta and turned it into ICE with financing from BP and Wall Street firms, including Goldman Sachs and Morgan Stanley.

Banks were drawn to the idea of a standardized place to buy and sell derivatives tied to the value of oil and other commodities. But they also hoped to create a competitor to the virtual monopoly position being built up by the Chicago Mercantile Exchange in futures trading....ICE also decided to fashion its own clearinghouse, rather than tap an outsize firm. It expanded through acquisitions, planting the seeds for growth in 2008, when it took over the Clearing Corporation, home to a popular derivative known as a credit-default swap.

The Dodd-Frank overhaul may provide additional benefits for ICE. Under the law, exchanges must turn over public and private information to outside data warehouses, which will, in turn, share the information with regulators. Sensing an opportunity, ICE created its own warehouse, named ICE Trade Vault.

ICE and its Chicago rival, CME Group, have also moved in recent months to convert swaps trades, which are facing more scrutiny under Dodd-Frank, into old-fashioned futures contracts. Futures trading is lucrative territory for the exchanges in part because they can shut out competitors.

“The reality is that there are incentives to convert swaps into futures, where there’s less competition,” said Richard M. McVey, chief executive of MarketAxess, an independent trading platform that is expanding into the swaps business. “There’s no requirement for CME and ICE to open their futures clearinghouses to other exchanges.”
contracts  stockmarkets  mergers_&_acquisitions  M&A  derivatives  Dodd-Frank  trading_platforms  bourses  OFT  hedging  opacity  public_information  private_information  disorganization  clearinghouses 
december 2012 by jerryking
Why JPMorgan’s shocking loss isn’t all that shocking - The Globe and Mail
TIM KILADZE
From Saturday's Globe and Mail
Posted on Friday, May 11, 2012
JPMorgan_Chase  derivatives 
may 2012 by jerryking
Goldman Builds Ambitious Role In Buyout Realm - WSJ.com
October 31, 2006 | WSJ | By HENNY SENDER

Goldman Builds Ambitious Role In Buyout Realm
Loans to Private-Equity Firms Edge Out Commercial Bankers; Wearing Hat as Investors, Too

Investment banks are building their financing capabilities as they build their own buyout, or private-equity, businesses....Goldman's footprint has been especially deep on complicated deals like Texas Genco. The power company was bought by the four buyout firms -- Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. and Texas Pacific Group. When those private-equity firms won Texas Genco in a hotly contested auction, they counted on Goldman for several aspects of their offer.

In addition to arranging the loans, Goldman arranged derivatives transactions that protected the new owners against the possibility of a plunge in energy prices. This hedge gave comfort to other lenders, making the financing less costly than it would otherwise have been.

Similarly, in 2005, when Cerberus Capital Management LP bought paper and timber operations from MeadWestvaco for $2.3 billion, Goldman led the financing and arranged hedges for the new owners against fluctuations in the prices of pulp, natural gas and currencies.

"If a deal requires creativity, Goldman will figure out how to make it work," says Scott Sperling of private-equity firm Thomas H. Lee Partners LP in Boston.
buyouts  private_equity  Goldman_Sachs  funding  LBOs  Cerberus  investment_banking  creativity  derivatives  hedging  owners 
april 2012 by jerryking
One Way of Insuring The Risky Business of Life - WSJ.com
APRIL 24, 2003 | WSJ | By DAVID R. HENDERSON. Financial derivatives have, in essence, allowed companies to buy insurance against swings in prices.

Wouldn't it be nice if individuals could join this game, hedging against, say, losses in income or in the equity value of houses? We will probably soon be able to, according to Robert J. Shiller in "The New Financial Order" (Princeton, 366 pages, $29.95).

Mr. Shiller, a finance economist at Yale University, writes that the information-technology revolution is making it easier to get good data on the home prices in various markets and on incomes in various occupations -- and to subject such data to reliable analysis. Once we know the numbers, he argues, we can hedge the risks.
hedging  derivatives  risks  book_reviews  personal_finance  Robert_Shiller  Yale  home_ownership  personal_beta  human_capital  quantified_self 
november 2011 by jerryking
Think Smarter About Risk - WSJ.com
JUNE 14, 2010 | Wall Street Journal | By MOSHE A. MILEVSKY.
Too many investors may be taking big chances with their money because
they aren't considering the most important asset of all: themselves.
"Eventually some clever teenager will develop an iPod app in which users
specify background demographic information about themselves, where they
live, educational achievements, job history, etc. They will then
receive daily updates on the value of their entire personal balance
sheet, including their human-capital value and personal beta. At first
this mark-to-market value of You Inc. will be crude, blunt and
controversial. But over time—and by tapping into the vast array of data
from the clouds—this valuation will be refined to the same level of
accuracy as any closing price on a mutual fund....One thing, though, is
certain: Knowing your personal beta will help you manage your total risk
more effectively. And that is always a safe strategy."
howto  risk-assessment  insurance  massive_data_sets  cloud_computing  personal_finance  derivatives  human_capital  hedging  risk-management  VaR  personal_data  personal_beta  quantified_self  risks  demographic_information 
june 2010 by jerryking
Holman Jenkins: Is Financial Innovation the Enemy? - WSJ.com
APRIL 28, 2010 | Wall Street Journal | By HOLMAN W. JENKINS, JR. Hedging against risk is hardly evidence of misbehavior.
Holman_Jenkins  Goldman_Sachs  finance  derivatives  financial_innovation 
april 2010 by jerryking
The Misguided Attack on Derivatives - WSJ.com
APRIL 26, 2010 | Wall Street Journal | By L. GORDON CROVITZ.
Short-selling warns markets that an asset bubble is about to burst.
Easy money, easy mortgages, and banks too big to fail were key causes of
the credit crisis. It was also Wall Street's greatest information
failure in many years. We need more trading, not less, and more signals
in the market faster that prices need to be adjusted. The last thing we
need is outlawing opportunities for people like Mr. Paulson to bring
vital information to market.
derivatives  L._Gordon_Crovtiz  John_Paulson  information_gaps  signals  information_flows  too_big_to_fail  short_selling  bubbles 
april 2010 by jerryking
Weather Risk Management
Mar 2004 | Journal of Risk and Insurance. Vol. 71, Iss. 1; pg. 181, 2 pgs | by Joseph J Launie.
ProQuest  weather  insurance  derivatives  climate_change 
february 2010 by jerryking
Hedge Funds Pluck Money From Air in $19 Billion Weather Gamble
August 1, 2007 | Bloomberg | By Peter Robison. "Brokers
attribute much of the increased volume to hedge funds, which buy and
sell the contracts based on minute changes in forecasts. Fears of global
climate change are helping too, drawing in companies from power
suppliers to ski resorts that want to transfer the risk of adverse
weather to outside investors. "
weather  derivatives  risk-management  climate_change 
january 2010 by jerryking
Send in the Clouds
03.12.07 | Forbes.com | by Quentin Hardy. Weatherbill, David
Friedberg's Web site, sells insurance against unwanted temperature
changes and rainfall at any of 200 cities in the U.S. It's primarily
aimed at businesses such as golf courses, amusement parks or
house-painting firms that lose out in foul conditions.
weather  risk-management  Weatherbill  insurance  derivatives 
november 2009 by jerryking
What Weather Costs
July 23, 2001 | The New Yorker | by James Surowiecki. Weather
derivatives are the basic tools for managing the risks that weather
poses to businesses. Invented in 1997, they come in complex forms and
have trading-desk names—swaptions, costless collars, strangles,
straddles—but what they do is quite simple. Ski resorts buy them to
protect against low snowfall (a resort might recover, say, five thousand
dollars for every inch that the season's snowfall is short of the
annual average). Gas companies use them to hedge against mild winters.
Corney & Barrow, a British wine-bar chain that specializes in
outdoor dining, used them last summer to insure that a run of rainy days
wouldn't hit its business too hard.
weather  derivatives  risk-management 
november 2009 by jerryking
Banking On The Weather This booming derivatives market gives new meaning to rainy-day funds. - May 31, 2004
May 31, 2004 | FORTUNE Magazine | By Abrahm Lustgarten. "Over
the past few years the weather-derivative market--invented seven years
ago by Enron to hedge its energy liabilities--has seen exponential
growth. In fact, hedging with weather contracts is beginning to
neutralize a host of financial risks. There's just one problem:
Meteorologists still lack reliable worldwide data. "Believe it or not,
there is not much attention paid globally to taking accurate
measurements of the weather," says Steve Jewson, a meteorologist who
develops derivatives for Risk Management Solutions."
weather  derivatives  risk-management  financial_risk 
november 2009 by jerryking
Everyone talks about the weather – soon you may bet on it
Oct. 06, 2009 | The Globe & Mail | by Tara Perkins. "This
'derivative' product Mr. Creative investor is not so complicated or new.
For example -- snowfall. Ski Hills love snow, Cities don't like it.
I'll let you figure out why. So, Ski Hill buys insurance that pays out
if they don't get snow. City buys insurance that pays out if they do get
snow. Both parties reduce their risks. "
weather  derivatives  insurance 
october 2009 by jerryking
Small Firms Look to Derivatives Trading - WSJ.com
MAY 29, 2007 | Wall Street Journal | by DAVID ENRICH

Investments Mute Risk of Price Swings For Raw Materials
hedging  raw_materials  commodities  derivatives  David_Enrich  size 
april 2009 by jerryking
Financial daisy chains can cause markets to seize up
Sept 8 2007, 07:45 AM G&M column by Avner Mandelman, who is
the president and chief investment officer of Giraffe Capital Corp. and
the author of The Sleuth Investor.
Avner_Mandelman  derivatives  risks  daisy_chains  instability 
march 2009 by jerryking
Financial daisy chains can cause markets to seize up
08/09/07 G&M by Avner Mandelman

the problem here is that at a certain point, the sum total of the legal-derivative demands in the chain, can surpass the physical/financial ability of the underlying institutions' balance sheets. And when the financial temperature rises everywhere because of some event, the system can seize up.

Are we at that point? I don't know, nor does anyone. Even Warren Buffett said that he doesn't. But, I can hear CFAs hollering: "What's wrong with transferring risk from those unwilling to assume it, to those who do? That's insurance, isn't it?" Yes and no.

The problem is that when too much risk is transferred to the system as a whole in a daisy chain, this can make the system unstable, as several studies showed after October, 1987, when portfolio insurance and dynamic hedging made the stock-clearing system temporarily unstable and the market crashed.
Avner_Mandelman  risks  derivatives  daisy_chains  instability  compounded  market_crash 
march 2009 by jerryking

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