A Quant Startup Made $430 Billion In Banks’ Systemic Risk Vanish In 25 Minutes
- In the wake of the crisis, banks and regulators rushed to address this risk of falling dominoes, forcing many swap trades once negotiated bilaterally between firms onto independent clearinghouses.
- Behind the scenes, many major firms have also embraced new technologies to pare down their remaining counterparty risks by identifying overlapping trades and offsetting them.
- These so-called trade “tear-ups,” done in markets such as interest rate swaps, have reduced risk and created new balance sheet breathing room for many of the world’s largest banks, perhaps allowing them to increase their lending.
- New York City-based LMRKTS, founded in 2012 by Lucio Biase, a former trader at Lehman Brothers, Credit Suisse and hedge fund Marathon Asset Management, used its proprietary algorithms to identify 1,182 redundant foreign exchange trades in currencies including the U.S. dollar, British Pound, Euro and Japanese Yen in 25 minutes.
- As banks like JPMorgan put trades on across Wall Street and offset their various trading risks, their books may end a trading day with flat market risk.
A little known four-person firm caller LMRKTS in New York just eliminated $430 billion in overlapping foreign exchange trades in 25 minutes.
@StartupCos_101: A Quant Startup Made $430 Billion In Banks’ Trading Risk Vanish In 25 Minutes
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