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Chairholders: Christian Gourieroux (CREST and University of Toronto) Christophe Pérignon (HEC Paris)

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Presentation on theme: "Chairholders: Christian Gourieroux (CREST and University of Toronto) Christophe Pérignon (HEC Paris)"— Presentation transcript:

1 Chairholders: Christian Gourieroux (CREST and University of Toronto) Christophe Pérignon (HEC Paris)

2 A Network of Researchers on Regulation and Systemic Risks 2 A Network in the Credit Default Swap Market: Chair Network:

3 Research Themes (non-exhaustive list) 3 (1)Definition and measure of systemic risk (SIFIs) (2)Regulatory capital (3)Sources of financial instability (4)Reserves for solvency and liquidity risks (5)Real effects of banking and financial regulation (6)Clearing houses (7)Estimation risk (8)Collateral (9)Contagion (10) Interconnection of financial institutions (11) Validation of risk models (12) Mortality and longevity risk

4 List of Researchers 4 AURAY Stéphane (CREST and ENSAI) CHALLE Edouard (CNRS, Ecole Polytechnique et CREST) DE BANDT Olivier (ACPR) FERMANIAN Jean-David (CREST) FRAISSE Henri (ACPR) GOURIEROUX Christian (CREST and University of Toronto) (chair) HEAM Jean-Cyprien (ACPR and CREST) HURLIN Christophe (University of Orleans) LOISEL Olivier (CREST and ENSAE) MONFORT Alain (University of Maastricht and CREST) PERIGNON Christophe (HEC Paris) (co-chair) RENNE Jean-Paul (Banque de France) THESMAR David (HEC Paris) ZAKOIAN Jean-Michel (CREST) Associated Researchers BILLIO Monica (University of Venice) DUBECQ Simon (European Central Bank) GAGLIARDINI Patrick (University of Lugano) JASIAK Joan (York University, Canada) SCAILLET Olivier (University of Geneva)

5 Research Activities 5 Monthly Seminar on Regulation and Systemic Risks Basels Accords versus Solvency II: Regulatory Adequacy and Consistency under the Postcrisis Standards, Caroline Siegel (Université de St Gallen), May 6, 2014 Conferences Systemic Risk and Financial Regulation Conference, July 3-4, 2014, Banque de France. Guest speakers: Darrel Duffie (Stanford) and Robert Engle (NYU) Books [2 in 2013] Working papers [30 in 2013] and published articles [34 in 2013] Presentations at seminars and meetings [>50 in 2013]

6 i LSLLSL LSLLSL Equity Interest rate Commodity margin Derivatives Clearing, Default Risk, and Insurance Jones and Pérignon (2013) CoMargin, Cruz, Harris, Hurlin, and Pérignon (2014) [1] How to Make Clearing Houses More Resilient j CoMargin

7 In a physical ETF, investors' money is directly invested in the index constituents. In a synthetic ETF, the fund issuer enters into a total return swap with a financial institution which promises to pay the performance of the underlying index. 69% of the ETFs and 35% of AUM in Europe, 100% of leveraged and inverse ETFs in the world Swap, hence counterparty risk collateral Since 2011, allegations made by the Financial Stability Board and IMF about the overall poor quality of ETF collateral. Massive outflows from synthetic ETFs in 2011-Q3. 89% of investors in the UK state a specific preference for physical ETFs over synthetic ETFs (Morningstar, April 2012). UCITS rules: 20% max per issuer in collateral portfolio; swap reset [2] Quantifying the Collateral Risk of ETFs 7 The Collateral Risk of ETFs, Hurlin, Iseli, Pérignon and Yeung (2014)

8 Synthetic ETF Structure 8

9 Synthetics: From Allegations to Outflows 9

10 Study the composition of the $40.9bn collateral portfolio of 164 ETFs managed by the second largest ETF provider in Europe, db x-Trackers. For each fund, we know the exact composition of the collateral portfolio every week between July 2012 and November What we do: (1) Measure the level of collateralization (NAV vs. collateral) (2) Assess the quality of the collateral (diversification, asset types, liquidity, ratings, correlation with index tracked and swap counterparty) (3) Estimate the likelihood and the magnitude of a collateral shortfall in a given fund. (4) Show how to build an optimal collateral portfolio for an ETF. Low-Quality Collateral? Lets Have a Look 10

11 A Preview of the Results 11 Total Funded Unfunded Number of ETFs AUM ($ Mio)Total 37,927 20,122 17,805 Asset ExposureEquities 74.5% (111) 85.5% (100) 61.9% (11) Government Bonds 11.0% (24) 2.2% (2) 20.8% (22) Money Markets 6.6% (4) % (4) Commodities 3.8% (2) 7.2% (2) - Hedge Funds Strategies 2.2% (6) 3.9% (3) 0.3% (3) Credits 0.7% (9) -1.6% (9) Corporate Bonds0.6% (3) - 1.4% (3) Currencies 0.3% (4) 0.6% (4) - Multi Assets0.3% (1) 0.6% (1) - Geographic ExposureEurope58.9% (79)29.4% (41)92.4% (38) World22.3% (41)37.0% (38) 5.5% (3) Asia-Pacific9.4% (28) 17.6% (24) 0.2% (4) North America 7.2% (14)11.9% (7) 1.9% (7) Rest of the World 2.2% (2) 4.1% (2) -

12 Size of Collateral Portfolios 12 Total FundedUnfunded Collateral Value ($ Mio)All40,94023,08017,860 Number of Collateral SecuritiesAll3,2993,0141,141 Average Number of Collateral SecuritiesAll per FundEquities Government Bonds Money Markets20 - Commodities93 - Hedge Funds Strategies37669 Credits10 - Corporate Bonds12 - Currencies50 - Multi Assets70 - CollateralizationAll108.4%114.6%101.3% Equities109.6%115.7%99.9% Government Bonds102.8%100.7%103.1%

13 Types of Collateral Securities 13 Panel A: Type of Collateral Securities All typesEquity Gov. Bonds Corp. Bonds Number of Collateral Securities3,2992, Asset ExposureAll74.9%19.7%5.4% Equity92.5%2.7%4.8% Gov. Bonds -96.5%3.5% Corp. Bonds % - Others40.8%48.8%10.4% Panel B: Geographic Origin of the Collateral Securities Europe Asia-Pacific N. America R. World Geographic ExposureAll66.0%17.5%16.3%0.2% Europe71.8%13.9% 0.4% Asia-Pacific56.0%24.1%19.8%0.1% N. America58.3%22.1%19.5%0.1% Rest of the World58.1%25.5%16.3%0.1% World58.8%21.7%19.4%0.1% home bias

14 Bonds Used as Collateral 14 Bond issuer Europe North America Asia-Pacific Rest of the World Bond TypeAll82.2%6.5%11.2%0.1% Gov. Bonds69.8%8.9%21.3% - Corporate Bonds91.6%4.8%3.5%0.1% Rating AAAAA ABBB BB Bn/a Bond TypeAll46.1%22.1%15.3%4.6%2.9%0.3%8.7% Gov. Bonds62.9%22.0%14.4%0.6%0.1% - - Corporate Bonds34.8%21.9%16.2%7.3%4.9%0.5%14.4% Bond IssuerEurope50.5%17.3%17.9%5.4%1.8%0.1%7.0% North America60.3%0.2% 1.6%13.5%3.3%20.9% Asia Pacific12.6%65.4%5.3%0.3%3.8% -12.6%

15 Turnover 15 Total FundedUnfunded TurnoverAll34.0%47.4%5.0% Equities43.9%46.5%18.8% Government Bonds1.3%0.5%1.4% Money Markets2.2% - Commodities72.7% - Hedge Funds Strategies29.7%60.7%0.3% Credits1.4% - Corporate Bonds2.4% - Currencies60.8% - Multi Assets76.7% -

16 Collateral Shortfall 16

17 More information at:


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