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Kitno


Total Posts: 500
Joined: Mar 2005
 
Posted: 2020-11-27 18:42
A few years ago a mate at a larger HF mentioned how they had begun trading at EOD their financing costs for each security on *term* REPO. I.e. novate around to improve financing by 1-5bps despite it being e.g. 3m term. He was middle office so it sounds like he was mischaracterizing but it stuck in my mind for a while.

Is this now fairly standard for larger funds or am I better off going to see Moby crack on to someone's gf?

On a laager on a hill. A long way from Avondale.

nikol


Total Posts: 1276
Joined: Jun 2005
 
Posted: 2020-11-27 20:18
What was/is their source of funding? (Security borrowing lending + repo + collateral) desk + notes, depos?

What you say resembles old delta one biz.

... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c)

Kitno


Total Posts: 500
Joined: Mar 2005
 
Posted: 2020-11-29 00:26
Nikol: [I]What was/is their source of funding? (Security borrowing lending + repo + collateral) desk + notes, depos?[/I]

"Yes" for lack of information. I should just ask him but from what he said at the time I thought it was REPO. At the time it was a tangential conversion over dinner about PA PE trades.

I would have thought it was asset agnostic if trading around for "financing arbitrage".

On a laager on a hill. A long way from Avondale.

nikol


Total Posts: 1276
Joined: Jun 2005
 
Posted: 2020-11-29 08:10
Convenient knowledge says that the sources I listed are sources of financing. In old days the cheapest was FED/CB O/N line, but today in return for such favour they oblige to keep on the balance their sovereign bonds as part of HQLA. Looks like it's all not very cheap, bcz assets effectively paying negative rate add cost.

In following, I fantasize here:
Repo is about bonds, hence the strategy is roughly about trading credit spread on debt part of balance sheet against as O/N SeqB/L proxy of dividends of same balance sheet, or portfolios. I think that with proper wrap, the financing can be generated around any tradable asset, like commodity [added] or even bitcoin or any digitized asset.

... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c)

nikol


Total Posts: 1276
Joined: Jun 2005
 
Posted: 2020-12-03 11:24
It seems that funding is like an absolute zero and hence there are no opportunities to improve (take spread) FVA, I have seen positive return on CB rate vs funding on retail depos with half of that.
Today everyone is willing to see inflation in form of high ON-rate. It may come sooner than everyone wants, but retail depo_rates will remain low and hence there will be the possibility for depo_rate < depo_rate

Btw, Trade Finance is something different. That's not what I meant (and not what you meant too by linking financing with repo). Any SBL/repo business (even inside HF) must be linked to the very effective collateral management (CSA/Master Agreements, MtM of assets and monitoring settlement risk). In the past it was quite expensive, today blockchained solution makes it significantly cheaper (google on "blockchain collateral")

... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c)

pj


Total Posts: 3567
Joined: Jun 2004
 
Posted: 2020-12-03 12:49
@nikol
Could you be more precise?
Googling
blockchain collateral
gave the gems as

HOSM-BlockChain-Collateral Iran
Kotak Wealth Hurun - Leading Wealthy Women's 2nd edition

The older I grow, the more I distrust the familiar doctrine that age brings wisdom Henry L. Mencken

nikol


Total Posts: 1276
Joined: Jun 2005
 
Posted: 2020-12-03 14:25
@pj

Wow! "your search results reflect your internet adventures" :))


I have something more modest, like: "A blockchain solution for OTC derivatives margin calls"

from Accenture:
https://www.accenture.com/t00010101T000000Z__w__/au-en/_acnmedia/PDF-75/Accenture-Unlocking-Infinite-Value-Blockchain-Collateral-Management.pdf

from DB:
https://www.finextra.com/newsarticle/35140/deutsche-bundesbank-dlt-offers-substantial-benefits-for-collateral-management

I liked this artistic-historic intro from DTCC:
https://perspectives.dtcc.com/gallery/will-blockchain-revolutionize-clearance-and-settlement

PS. Once you have assets tokenized, the movement of collateral is becoming much faster (from T+2 or T+1 into T+5 minutes), easier (lock on assets, see AirSwap as example) and, therefore, cheaper. DeFi is a living example.

... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c)

pj


Total Posts: 3567
Joined: Jun 2004
 
Posted: 2020-12-03 17:50
thank you!

The older I grow, the more I distrust the familiar doctrine that age brings wisdom Henry L. Mencken

nikol


Total Posts: 1276
Joined: Jun 2005
 
Posted: 2020-12-13 14:09
Its name is JPMCoin

https://www.bloomberg.com/news/articles/2020-12-10/jpmorgan-using-blockchain-to-move-billions-in-repo-market-trades

As I said: tokenization simplifies the entire process. And makes discounting a bit different (see the other thread)

... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c)

illLiquid


Total Posts: 4
Joined: Nov 2012
 
Posted: 2020-12-22 04:19
This is just fairly vanilla primebroker financing optimisation or delta1 inventory management.
Brokers will offer outperformance financing vs. the portfolio financing benchmark if you agree to term a trade (usually on swap). So instead of libor + 40 or whatever, if you agree to term it the will give you libor + 35. Depends on the name, demand for it on the short side etc. Nothing top tier about it. Infact its what every PM should demand from his middle office/treasury/financing team on stable names in the portfolio.

Funds shop their portfolios around everyday or week and refinance depending on relative attractiveness (accounting for taxable events etc), relative attractiveness is a function of short demand that broker sees from their SBL desk, intermarket repo, index futures basis (if the name is apart of) etc. Multivariate but not too complex.

nikol


Total Posts: 1276
Joined: Jun 2005
 
Posted: 2021-01-05 09:34
Meanwhile


"Federally Chartered Banks and Thrifts May Participate in Independent Node Verification Networks and Use Stablecoins for Payment Activities"
https://www2.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2.html

This means that the wave of assets tokenization is coming

... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c)
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