With news of the J.P. Morgan trading loss well conversed around the world, Farah Khalique investigates whether trading activities are being carried out beyond the closely regulated sales and trading divisions in other banks.
In most cases, the way to find such activity lies with where these trades are being reported, either recorded in the trading book or the banking book.
The article then looks at treasury departments, maintaining that their role is to deal with the day-to-day asset liability management issues, such as the funding of legal entities across the world and working in the currency and interest rate markets. GreySpark agrees, and reinforces that the treasury function is actually more focussed on getting funding than taking positions or lending.
The article goes on to debate the various ways of achieving greater transparency in trading and gives a real life example of where working across trading desks and central risk desks raises conflicts of interest, and how easily it can all go wrong.