Women in Derivatives Conference Examines How Changes in Market Structure Impact Volatility

Thought leaders from BlackRock, Societe Generale and Guggenheim Partners spoke to more than 200 attendees about forces expected to make markets more volatile

Dec 04, 2015, 09:50 ET from Women in Derivatives

NEW YORK, Dec. 4, 2015 /PRNewswire-USNewswire/ -- Even with the distance between the financial crisis and today continuing to widen, investors should continue to find a changing market structure and volatile conditions across a range of asset classes.

That was one of the key takeaways from the "Changes to Market Structure: Impact on Volatility" conference held at the Harmonie Club in New York on Dec. 2. More than 200 women in financial services attended the event sponsored by Women in Derivatives (WIND), a 501c3, nonprofit industry group.

The event focused on the rapidly evolving landscape of the financial markets, bringing together a panel of distinguished thought-leaders, including:

  • Gargi Pal Chaudhuri, Portfolio Manager at BlackRock
  • Aneta Markowska, Chief Economist at Societe Generale
  • Anne Mathias, Senior Macro Strategist at Guggenheim Partners

Deborah North, Partner at Allen & Overy LLP, joined fellow panelists as moderator. The panel discussed the impact that changes will have on market participants, interest rates, inflation, volatility, liquidity and investors. Comments from the panelists appear below:

Anne Mathias, Senior Macro Strategist at Guggenheim Partners
Understanding market structure today is like looking into a kaleidoscope; moment by moment the fractal edges of the market become more complex, traditional relationships change, new players emerge.  This is our environment for 2016.  We are finally emerging from the shadow of the financial crisis.  Market participants are adapting to the new rules, but the playing field is still not firm.  We expect to see greater volatility and liquidity challenges in markets, such as US Treasuries, that traditionally were seen as great pools of stability.  As such, investors will need to critically assess the value of the liquidity premium that they may be paying and think more holistically about managing volatility and liquidity in portfolios.

Deborah North, Partner at Allen & Overy LLP
The industry is getting to grips with the unintended consequences of the international regulatory maze that has developed post financial crisis.  Clearing, for example, is one of the cornerstones of the 2009 G20 commitments yet the Basel III related capital consequences and other requirements are such that offering clearing services may no longer be attractive. Concerns have also arisen as to whether demands for high quality collateral in the context of cleared and uncleared derivatives will distort the underlying markets in them.  Market fragmentation may be emerging around the trading mandate. We're at a crucial point now where we need consider the new shape of the market, and how this aligns with stated regulatory objectives.

Aneta Markowska, Chief Economist at Societe Generale
The changes in market structure and liquidity outlined by Anne and Deborah have been masked to some extent by easy monetary conditions and a favorable macroeconomic backdrop.  Now that the US economy is entering a more advanced stage of the business cycle, fundamentals and technicals will combine to drive higher volatility. With the labor market approaching full employment, we are bound to see some rebalancing from capital to labor. The Phillips curve is coming back to life and the latest pickup in wage growth is only the beginning. This marks a new headwind for earnings growth and a tailwind for inflation.  I believe that these forces are not yet fully reflected in market pricing.

Gargi Pal Chaudhuri, Portfolio Manager at BlackRock
With the unemployment rate currently sitting at 5%, we are now nearer to the Fed's longer run normal rate of employment than at any time during the past seven years. However, the inflation market gives no credence to the improving labor market or the recent pick up in wage data.  Despite the significant elimination of slack, inflation markets are pricing in only 1.6% inflation for the next 10 years, which is about 30bps lower than the current run rate of core inflation. I believe that we may slowly see core inflation creep up towards 2.2%  in the first half of 2016 (from its current rate of 1.9), mainly resulting from a pick-up in services inflation, and inflation markets as priced by TIPS breakevens may rebound by 30-40bps from here.

"Creating a forum for senior female leaders to share their insights about trends and opportunities emerging in the financial industry is one of WIND's top priorities," explained Kristin Boggiano, Founder and President of WIND and Managing Director at Guggenheim Partners. "We are in an industry undergoing historic regulatory and structural changes, and WIND provides education as the market evolves."

Financial support for the event was generously donated by Allen & Overy and Depository Trust and Clearing Company. For more information regarding the event or about WIND generally, please contact info@womeninderivatives.org.                                    

About Women in Derivatives          
Women in Derivatives (WIND), a 501c3 organization, is a global nonprofit of more than 3,500 members, with a core mission to attract, retain, educate and develop female leaders in the financial industry.  WIND provides targeted channels for education, mentoring and sponsorship, leveraging senior leaders within its organization. Participants include professionals in risk management, trading, portfolio management, sales, law, economics, marketing, research, academia, government, operations and technology.  For information, please visit http://womeninderivatives.org.

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