Bikram Choudhury’s Post

https://lnkd.in/eCrEd8S4 Citigroup Global Markets Limited (CGML) has been fined £33,880,000 by the Prudential Regulation Authority (PRA) for failures in its trading systems and controls. This penalty was imposed after repeated communication from the PRA to strengthen their controls, and a significant trading incident where $1.4 billion was executed due to an incorrect order. CGML has been required to strengthen its trading controls and undergo remediation work.  The PRA identified the following rule breaches by Citigroup Global Markets Limited (CGML) during the relevant period: PRA Fundamental Rule 2: CGML breached the requirement to conduct its business with due skill, care, and diligence. PRA Fundamental Rule 5: CGML failed to have effective risk strategies and risk management systems in place. PRA Fundamental Rule 6: CGML did not organize and control its affairs responsibly and effectively. Rule 2.1(2) Algorithmic Trading of the PRA Rulebook: CGML did not have effective systems and risk controls to ensure that its trading systems were subject to appropriate trading thresholds and limits. Rule 2.1(3) Algorithmic Trading of the PRA Rulebook: CGML did not have effective systems and risk controls to prevent the sending of erroneous orders or the systems functioning in a way that may create or contribute to a disorderly market. Rule 2.2(2) Algorithmic Trading of the PRA Rulebook: CGML failed to ensure that its systems were fully tested and properly monitored to meet the requirements of Rule 2.1 Algorithmic Trading of the PRA Rulebook. These rule breaches highlight the deficiencies in CGML's trading systems and controls, which ultimately led to the trading incident and subsequent penalties imposed by the PRA and the Financial Conduct Authority (FCA). The document mentions several deficiencies in CGML's trading controls that contributed to the trading incident and subsequent penalties. These deficiencies in CGML's trading controls were identified by the PRA and were found to have contributed to the trading incident on 2 May 2022, where an experienced trader incorrectly inputted an order resulting in the inadvertent execution of US$1.4 billion on European exchanges. These deficiencies highlight the weaknesses in CGML's risk management systems and the need for stronger controls to prevent such incidents from occurring. 1. Absence of certain preventative hard blocks: CGML's trading controls lacked certain preventative hard blocks, which could have helped prevent the execution of erroneous orders or the occurrence of trading incidents. 2. Inappropriate calibration of other controls: CGML's trading controls were not appropriately calibrated, indicating that the settings or parameters of these controls were not properly adjusted to effectively manage and mitigate risks. #frontofficesupervision #tradingcontrols #bankingindustry #riskcontrols #algotrading #financialmarkets

As the 21 October 2024 deadline for ASIC’s game-changing updates to OTC derivative transaction reporting looms, Australian financial institutions need to prepare for a seismic shift in transparency, risk management, and compliance oversight writes Shane Flatman from our client Fund Recs for the Financial Standard. While these updates promise to turbocharge these areas, they also come with a laser focus on reporting accuracy and hefty penalties for breaches as have been experienced overseas under changes to the European Markets Infrastructure Regulation (EMIR). Read more here: https://lnkd.in/gKdr4SQa #EnterpriseIreland #GlobalAmbition #FinTech #FinancialServices #GlobalAmbition 📸: Financial Standard

In our most recent blog post, Laura Valls Sanchis, CEFA, EFA shares our open-source contribution to the FINOS Common Domain Model (CDM): the implementation of the Standardized Schedule Method for calculating Initial Margin (IM). This simplified, structured approach ensures: ✅ Accurate, consistent IM calculations. ✅ Standardization to reduce disputes and ease compliance. ✅ Improved risk management and market stability. Our contribution streamlines margin calculations, making compliance more accessible while promoting transparency and resilience in the OTC derivatives market. 📖 Learn more in our blog: https://lnkd.in/duwwknW8 #CDM #InitialMargin #OTCDerivatives #StandardizedSchedule Manuel Carrera Moreno Manuel Martos Anna Muñoz

Correlation Analysis of Key Transaction Variables Objective: Evaluate the relationships between transaction amount, money laundering risk score, and the involvement of shell companies to identify potential patterns or dependencies. Visualization:  The correlation matrix heatmap illustrates the relationships between: Amount (USD) Money Laundering Risk Score Shell Companies Involved Insight:  The heatmap reveals minimal correlation among the variables, with values close to zero across the matrix: Amount (USD) and Money Laundering Risk Score: Weak positive correlation (0.02). Amount (USD) and Shell Companies Involved: Slight negative correlation (-0.02). Money Laundering Risk Score and Shell Companies Involved: Weak negative correlation (-0.02). This indicates that these variables operate independently, suggesting that risk patterns may not be directly tied to transaction amounts or shell company involvement, necessitating further investigation.

LEI (Legal Entity Identifier) is becoming increasingly important due to its ability to: 1. _Enhance transparency_: LEI provides a standardized way to identify legal entities, making it easier to understand complex ownership structures and relationships. 2. _Reduce risk_: Accurate identification of entities helps mitigate risks associated with: - Money laundering - Terrorist financing - Counterparty credit risk - Operational risk 3. _Improve regulatory compliance_: LEI is required for various regulatory reporting requirements, such as: - MiFID II (Markets in Financial Instruments Directive II) - EMIR (European Market Infrastructure Regulation) - Dodd-Frank Act - Solvency II 4. _Facilitate global transactions_: LEI enables smooth and efficient cross-border transactions by providing a common language for identifying entities. 5. _Support digitalization and automation_: LEI can be used to automate processes, such as: - Client onboarding - Know-your-customer (KYC) checks - Compliance reporting 6. _Enable data sharing and aggregation_: LEI facilitates the sharing and aggregation of data, enabling: - Better risk management - Improved market surveillance - Enhanced financial stability 7. _Increase efficiency_: LEI reduces the need for manual data entry, minimizing errors and saving time. 8. _Support financial inclusion_: LEI can help identify and reach underserved or unbanked populations. As the financial industry continues to evolve, LEI's importance will only grow, driving greater transparency, efficiency, and regulatory compliance.

Rule Updates Incoming! The SEC has adopted rule amendments and a new rule to improve the resilience and recovery and wind-down planning of covered clearing agencies. The rule amendments establish new requirements regarding a covered clearing agency’s collection of intraday margin as well as a covered clearing agency’s reliance on substantive inputs to its risk-based margin model. The rule amendments require that a covered clearing agency that provides central counterparty services has policies and procedures to establish a risk-based margin system that monitors intraday exposures on an ongoing basis, includes the authority and operational capacity to make intraday margin calls as frequently as circumstances warrant (including when risk thresholds specified by the covered clearing agency are breached or when the products cleared or markets served display elevated volatility), and documents when the covered clearing agency determines not to make an intraday call pursuant to its written policies and procedures. Does this rule affect you and your firm? Find out more information including the enforcement date here: https://lnkd.in/ey8k84ia #sec #enforcement #ruleupdate #finance

FCA: Transaction Reporting Forum: MiFID/MiFIR review 22Jan2025: on-site at the FCA with 100+ industry participants, Helen Packard, Dominic Holland, Tom Soden, etc. High volume/quality of interaction. The FCA stressed 'everything was on the table’. The audience stressed their priority was clearer guidance, including more real-world examples. Intro: First FCA/industry forum in 7 years FCA receive >7billion records pa DP response deadline: 14Feb Objectives: improve data quality/proportionate regulation Mechanisms: Clearer guidance  Harmonise regimes New/remove rules/fields Timeline: 2025: CP (Consultation Paper) 2026: PS: (Policy Statement) TBD: entry into force Discussion topics: FX derivatives: the original guidance was created to match market convention but failed to consider booking model variations. FCA is open to revision. FCA acknowledges need for better ToTV definition. Personal information for investment and execution decisions within firm: FCA propose aligning with the buyer/seller fields. FCA acknowledges the challenges around data security. TVTIC: FCA acknowledges the impact of lack of standards on syntax or transmission. In a subsequent breakout session, there was support for central publication of the code. Aggregate client linking code (INTC): FCA acknowledges problem with the uniqueness of the code used. FCA has suggested adding a new linking code/field or replace INTC with a new code. Price fields for complex (package) trades: FCA suggestion is to add new component price field/s but they acknowledged these are not always available. Audience suggestion was to just provide better guidance. Role of intermediary brokers in reporting chains. FCA acknowledges inconsistent reporting due to confusion over definition and misalignment with order management systems. Q&A: Audience: would it be possible to send a correction message including only the relevant data-points rather than a full message? FCA: good idea, if technically possible. Audience: what is the benefit of bringing AIFM into scope? FCA: to complete the risk picture. Audience challenge: given the sell-side already report, this buy-side requirement is duplicative. Audience: trades bouncing between desks in UK/non-UK affiliates results in multiple reporting. Will the FCA address this? FCA: will review definitions. Breakout session attendees requested: - more real-world examples - machine readable (hard logic) version of the narrative guidance - 18-month minimum implementation period - remove duplicate reporting of the same trade (MiFID/EMIR) by rationalising into one unified submission - FCA should be willing to diverge from ESMA where their changes are poor Post-event chat with another attendee: JSON 'may' have appeared as a (very unwelcome) consideration as server storage costs (for FCA/ESMA) of billions of trades, for years, is expensive and is higher for XML than JSON (which is a more compressed format than XML). #FCA #MiFID #MiFIR #RegulatoryReporting

Agent clearing models for repo are hard to achieve. As the attached Risk.net article mentions, FCM type agency models such as FICC’s - where intermediaries are considered to be joint principals with their clients (rather than true agents) - have significantly greater balance sheet impact for repo than for derivatives as the intermediary has to reflect the full notional amount of repo transactions on its balance sheet, rather than just economic exposure. It remains to be seen if any of the other CCPs contemplating offering repo clearing in the US will be able to offer a structure that solves the accounting issue. What is clear is that Guaranteed Repo does not face this issue. Guarantors are not principals to transactions, so the notional amounts of guaranteed trades are not reflected in their balance sheets or their SLR calculations. Guaranteed Repo also results in lower RWAs and costs than clearing (or bilateral “matched book” repo trades, for that matter) and is excluded from the LCR, NSFR and most elements of the GSIB Surcharge calculations, making it the most efficient secured funding model. Please see Shiv Rao and SUNTHAY for more info on Guaranteed Repo. https://lnkd.in/efsrX5Fi

SEBI: MODIFIES MASTER CIRCULAR TO PROVIDE FPIS FLEXIBILITY IN SECURITIES POST REGISTRATION-EXPIRY SEBI modifies the Foreign Portfolio Investors (FPI) Master Circular in view of the amendments to the FPI Regulations, 2019, which provides flexibility to FPIs in dealing with their securities post expiry of their registration; States that - (i) FPIs who wish to continue with their registration for the subsequent block of three years, should pay the fees to their Designated Depository Participants (DDPs) and inform change in information, if any, as submitted earlier, (ii) FPI shall provide the additional information along with supporting documents including fees for continuance of its registration at least 15 days prior to current validity of its registration in order to facilitate a smooth continuance process, (iii) if DDP is in receipt of registration fees prior to validity date but the due-diligence including KYC review is not complete by the validity date due to non-submission of information by the FPI, no further purchases may be permitted until intimation of continuance is given by DDP, and (iv) the re-activation of registration shall be subject to the FPI complying with applicable AML/CFT/KYC requirements, however, no fresh purchases of securities shall be permitted from expiry of registration till re-activation of registration.

Our emerging regulatory change watch https://lnkd.in/ekVdccca was published on the 21st May 2024. Back then we expected the Australian technical guidelines sometime in Q3 2024. They were released last week and there is still time for firms challenged by the Australian #ASIC and Singaporean #MAS regulatory changes to get help from AQMetrics