The Capital Markets, Evolution of the Financial Ecosystem, First Edition by Strumeyer, Gary -- Read -- Imperial Library of Trantor

Index

Cover Table of Contents Preface Acknowledgments About the Author & Executive Editor

GARY STRUMEYER SARAH SWAMMY

About the Contributors Part One: Introduction and Tools

CHAPTER 1: The Early 21st‐Century Evolution of Global Capital Markets

INTRODUCTION CAPITAL MARKET MISSION AND KEY CAPITAL MARKET QUESTIONS POST–GREAT RECESSION, GLOBAL CAPITAL MARKETS CHART A MORE CONSERVATIVE COURSE ACCURATE FINANCIAL ERA DEFINITION HELPS CHART BUSINESS AND PORTFOLIO STRATEGY THE GREAT TRANSITION AGE UNFOLDS NO TRANSITIONS ARE FRICTIONLESS THE NEW CONSERVATIVE FINANCIAL CONSENSUS SPEEDS THE TRANSITION TO THE NEXT‐GENERATION GLOBAL FINANCIAL SYSTEM STURDIER GLOBAL FINANCIAL SYSTEM PROMOTES WORLD ECONOMIC GROWTH

CHAPTER 2: The Role of Global Capital Markets

INTRODUCTION THE BASIC PRODUCTS OFFERED IN CAPITAL MARKETS CAPITAL MARKETS AS A SUBSTITUTE FOR BANK LENDING KEY PARTICIPANTS IN CAPITAL MARKETS TYPES OF MARKETS CAPITAL MARKETS DEVELOPMENT

CHAPTER 3: How the Global Financial Crisis Transformed the Industry

THE SITUATION PRIOR TO THE GLOBAL FINANCIAL CRISIS OVERVIEW OF REGULATION INTRODUCED 2008–2015 IMPACTS ON BUSINESS MODELS HOW IT IMPACTS THE FUNCTIONING OF CAPITAL MARKETS

CHAPTER 4: Cash Bonds and Futures

TOOLS OF THE TRADE DISCOUNT FACTORS PRICE‐YIELD FORMULA U.S. TREASURY DEBT OBLIGATIONS PV01, PVBP CONVEXITY YIELD CURVE SAMPLE TRADES FORWARD PRICES: CASH AND CARRY FORWARD RATES EXTRACTING THE DISCOUNT FACTOR CURVE CARRY, ROLL‐DOWN U.S. TREASURY FUTURES

CHAPTER 5: Risk in Capital Markets

INTRODUCTION OVERVIEW OF RISK MANAGEMENT IN CAPITAL MARKETS METRICS USED TO MEASURE AND MONITOR RISK BRIEF OVERVIEW OF REGULATORY LANDSCAPE METRICS FOR MAJOR RISK TYPES THE INTERSECTION BETWEEN RISK AND STRATEGY FUTURE OUTLOOK

CHAPTER 6: Enablers for Robust Risk Management in Capital Markets

INTRODUCTION OVERVIEW OF CAPITAL MARKETS RISK MANAGEMENT PROCESSES TECHNOLOGY CAPABILITIES AND IT ARCHITECTURE TO SUPPORT CAPITAL MARKETS RISK DATA CAPABILITIES TO SUPPORT CAPITAL MARKETS RISK LOOKING FORWARD

CHAPTER 7: Making Markets Work

INTRODUCTION SECURITIES MARKET INFRASTRUCTURE DERIVATIVES MARKET INFRASTRUCTURE CONCLUDING REMARKS

Part Two: Capital Markets Products

CHAPTER 8: Money Markets

FEDERAL FUNDS MARKETS REPURCHASE AGREEMENTS U.S. TREASURY BILLS (T‐BILLS) GOVERNMENT‐SPONSORED ENTERPRISES/FEDERAL AGENCY SECURITIES COMMERCIAL PAPER CERTIFICATES OF DEPOSIT EURODOLLAR DEPOSITS MUNICIPAL NOTES VARIABLE RATE DEMAND NOTES MONEY MARKET FUNDS HOW THE FINANCIAL CRISIS OF 2007 AND 2008 CHANGED THE MONEY MARKETS CONCLUSION

CHAPTER 9: Repurchase Agreements

INTRODUCTION MECHANICS OF A REPO TRADE MARGINING TRADES MARKET PARTICIPANTS RISKS ASSOCIATED WITH REPO TRANSACTIONS DELIVERY CONVENTIONS GENERAL COLLATERAL AND SPECIALS DETERMINANTS OF REPO RATES AVAILABILITY OF COLLATERAL THE FEDERAL RESERVE AND REPO REPO AND BOND CARRY CONCLUSION

CHAPTER 10: U.S. Treasury and Government Agency Securities

FEATURES OF U.S. TREASURY SECURITIES TYPES OF TREASURY SECURITIES TREASURY AUCTIONS CONCLUSION

CHAPTER 11: Government‐Sponsored Enterprises and Federal Agencies

INTRODUCTION AGENCY BONDS OVERVIEW OF GOVERNMENT‐SPONSORED ENTERPRISES; HOUSING GSEs HISTORY OF FANNIE MAE AND FREDDIE MAC FEDERAL HOME LOAN BANKS (FHLB) OVERVIEW OF GOVERNMENT‐SPONSORED ENTERPRISES; NON‐HOUSING GSEs OVERVIEW OF FEDERAL AGENCIES TYPES OF AGENCY DEBT COST‐BENEFIT ANALYSIS OF CALLABLE NOTES THE 2008 FINANCIAL CRISIS CONCLUSION

CHAPTER 12: Inflation‐Linked Bonds

INDEXATION REAL YIELDS AND INFLATION BREAKEVENS SEASONALITY OF CONSUMER PRICES DIVERSIFICATION PROPERTIES TAX TREATMENT RISKS ISSUANCE SCHEDULE I BONDS OTHER COUNTRIES REASONS FOR ISSUING INFLATION‐LINKED BONDS BOND MATHEMATICS SUMMARY

CHAPTER 13: Mortgage‐Backed Securities

MORTGAGES: THE BUILDING BLOCKS OF MBSs WHAT ARE MORTGAGE‐BACKED SECURITIES? THE ISSUING AGENCIES WHY ARE MBSs ATTRACTIVE? TERMINOLOGY TYPES OF UNDERLYING LOANS AGENCY PASS‐THROUGH TRADING PREPAYMENT RISK AND ANALYSIS OAS ANALYSIS AND MBS THE FUTURE OF FANNIE MAE AND FREDDIE MAC SECURITIZATION

CHAPTER 14: Corporate Bonds

WHAT IS A CORPORATE BOND? TYPES OF BOND STRUCTURES HOW ARE CORPORATE BONDS PRICED? STAKEHOLDERS IN THE CORPORATE BOND MARKET PRICE TRANSPARENCY HIGH‐YIELD (“JUNK”) BONDS EMERGING BOND MARKETS WHAT IS AN EMERGING MARKET?

CHAPTER 15: Preferred Stock

PERPETUAL PREFERRED STOCK DIVIDEND‐RECEIVED DEDUCTION (DRD) FIXED TO FLOAT NONCUMULATIVE PREFERRED STOCK CUMULATIVE PREFERRED STOCK CONVERTIBLE PREFERRED STOCK FEATURES OF PREFERRED STOCK ANTICIPATING THE RISKS PREFERRED STOCK ISSUANCE AND TRADING CONCLUSION

CHAPTER 16: Distressed Debt Securities

OVERVIEW OF DISTRESSED DEBT SECURITIES WHAT CONSTITUTES “DISTRESS” TRADING MARKET FOR DISTRESSED DEBT TRADING STRATEGY ON THE DISTRESSED DEBT PUERTO RICO: A DISTRESSED SITUATION THE SOVEREIGN DEBT CRISIS GREECE FINAL THOUGHTS ON DISTRESSED DEBT SECURITIES

CHAPTER 17: Securitization

SECURITIZATIONS IN GENERAL SECURITIZATION BASICS: STRUCTURES, COLLATERAL TYPES, AND RISKS TRACE REPORTING

CHAPTER 18: Asset‐Backed Securities

AUTOMOBILE SECURITIZATION CREDIT CARD SECURITIZATION

CHAPTER 19: Non‐Agency Residential Mortgage‐Backed Securities (RMBSs)

RMBS OVERVIEW THE CREATION OF RMBS MORTGAGE QUALITY TYPES PARTICIPANTS IN THE CREATION OF AN RMBS CREDIT RATINGS RISK FACTORS AFFECTING RMBs OPERATION OF THE RMBS MARKET RMBS CONTRACTS REPRESENTATIONS AND WARRANTIES OPACITY AND COMPLEXITY OF SECURITIES

CHAPTER 20: Commercial Mortgage‐Backed Securities (CMBSs)

OVERVIEW OF COMMERCIAL MORTGAGE‐BACKED SECURITIES CMBS MARKET PARTICIPANTS UNDERLYING COLLATERAL CMBS 2.0 CMBS STRUCTURES INDUSTRY PRACTICES FOR THE MARKETING AND SALES OF CMBSs

CHAPTER 21: Collateralized Debt Obligations (CDOs)

INTRODUCTION TO CDOs PRIORITY OF PAYMENTS CDO MARKET PARTICIPANTS COLLATERAL PRICING CDO TRADING MOTIVATION FOR ISSUING CDOs

CHAPTER 22: Structured Investment Vehicles (SIVs)

INTRODUCTION TO SIVs SIV STRUCTURE STRUCTURAL PROTECTIONS

CHAPTER 23: Collateralized Loan Obligations (CLOs)

WHAT IS A COLLATERALIZED LOAN OBLIGATION (CLO)? STRUCTURES AND STRUDELS: AN INTRODUCTION TO STRUCTURED FINANCE BON APPETIT: REENGINEERING FOR RISK APPETITE CHASING WATERFALLS THE CAPITAL STRUCTURE: THE INTERSECTION OF STRUCTURED AND CORPORATE FINANCE BEING FRIENDLY: DEBT VERSUS EQUITY CLO COVERAGE TESTS: TAKE YOUR PIK THE LIFE AND TIMES OF A CLO THE LOAN MARKET CLO REPORT CARDS: PERFORMANCE METRICS THE CLO MANAGER QUALITATIVE ANALYSIS OF A CLO QUANTITATIVE ANALYSIS OF A CLO A WHOLE NEW WORLD: CLOs IN THE POST‐CRISIS REGULATORY ENVIRONMENT CONCLUSION

CHAPTER 24: Municipal Bonds

INTRODUCTION MUNICIPAL BOND CREDIT ANALYSIS THE EROSION OF THE GENERAL OBLIGATION PLEDGE A WORD ABOUT PUERTO RICO TYPES OF MUNICIPAL BOND STRUCTURES THE PRIMARY MARKET THE SECONDARY MARKET INVESTING IN MUNICIPAL BONDS MUNICIPAL BOND RISK FACTORS CASE STUDY

CHAPTER 25: Equities

WHAT IS AN EQUITY? TYPES OF EQUITIES WHY DO COMPANIES ISSUE EQUITIES? EQUITY MARKET PARTICIPANTS EQUITY MARKETS MECHANICS OF ORDER‐DRIVEN MARKETS HISTORY OF EQUITY TRADING MODERN MARKET STRUCTURE—ORDER TYPES MODERN MARKET STRUCTURE—COMPLEXITY MODERN MARKET STRUCTURE—MARKET DATA HIGH‐FREQUENCY TRADING

CHAPTER 26: Cash Equities in the Secondary Market

INTRODUCTION THE INSTITUTIONAL CLIENT THE PORTFOLIO MANAGER THE RESEARCH ANALYST THE BUY‐SIDE TRADER THE BROKER‐DEALER (SELL‐SIDE) EQUITY RESEARCH THE RESEARCH ANALYST RESEARCH SALES EXECUTION ADDITIONAL PRODUCTS AND SERVICES CONCLUSION

CHAPTER 27: Exchange‐Traded Funds (ETFs)

CONSTRUCTING AN ETF: MARKET PARTICIPANTS AND THEIR FUNCTIONS ETF REGULATIONS DETERMINING NET ASSET VALUE OF ETFS PORTFOLIO DISCLOSURE UNDERSTANDING DIFFERENT ETF STRATEGIES PORTFOLIO CONSTRUCTION METHODOLOGY CONCLUSION

CHAPTER 28: Equity Capital Markets

SECURITIES OFFERING REFORM OF 2005 THE RISE OF ELECTRONIC TRADING THE GREAT RECESSION GROWTH OF THE ATM MARKET ATM FINANCING VERSUS FOLLOW‐ON OFFERING DUE DILIGENCE REGIMEN TRANSACTION PARTICIPANTS AND TYPICAL ATM DOCUMENTATION THE SELLING AGENT CORPORATE BOARD AND MANAGEMENT OVERSIGHT MARKETPLACE ACCEPTANCE SIZING AN ATM PROGRAM REGULATION M PROCEDURES AND MECHANICS OF THE ATM PROGRAM ATM SELLING STRATEGIES VARIATIONS OF THE ATM MODEL SUMMARY

CHAPTER 29: Interest Rate Swaps

PLAIN‐VANILLA FIXED‐FOR‐FLOATING SWAPS CLASSICAL SINGLE‐CURVE WORLD THE NEW WORLD: DECOUPLED DISCOUNT AND FORWARD CURVES OIS MARKET LIBOR MARKET INSTRUMENTS DUAL CURVE CONSTRUCTION SWAP TRADING—RATES OR SPREADS SWAP SPREADS RISK, PV01, GAMMA LADDER CREDIT CONSIDERATIONS: XVA

CHAPTER 30: Interest Rate Options

1‐STEP BINOMIAL MODEL FROM 1 TIME‐STEP TO 2 TO … NORMAL DISTRIBUTION MODELING ASSET CHANGES GREEKS CALL IS ALL YOU NEED INTEREST RATE OPTIONS MARKET PLAYERS CAPLETS/FLOORLETS: OPTIONS ON FORWARD RATES EUROPEAN‐STYLE SWAPTIONS SKEWS, SMILES CMS PRODUCTS BOND OPTIONS

CHAPTER 31: Commodities

INTRODUCTION COMMODITY FUNDAMENTALS TYPES OF COMMODITIES COMMODITIES EXCHANGES COMMODITY CONTRACTS KEY CHARACTERISTICS INVESTMENT VEHICLES FUTURE TRENDS BOOM TO BUST AND BACK AGAIN? NEW COMMODITIES

CHAPTER 32: Currency

THE EMERGENCE OF A FOREIGN EXCHANGE MARKET THE MECHANISM WHO USES THE FOREIGN EXCHANGE MARKET? WHAT ARE THE MAIN CURRENCIES? EXCHANGE RATE REGIMES THE SIZE OF THE FOREIGN EXCHANGE MARKET THE FUTURE OF THE FOREIGN EXCHANGE MARKET

CHAPTER 33: Conclusion

SECTION 1: SAFER BANKS, BUT IS THE FINANCIAL SYSTEM SAFER? SECTION 2: ARE THERE ANY UNINTENDED IMPLICATIONS OF RECENT REGULATION? SECTION 3: A NEED FOR REINVENTION

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