Wednesday, January 30, 2013

Compliance Training



TMM were recently comparing notes with friends around the market (and indeed some not in the market but in other large institutions) over the pleasures of online compliance, ethics, anti-bribery and anti-money laundering training. Of course these courses are designed to pass the onus of responsibility from the company to the individual and prevent said company enduring prosecution for the actions of its employees, but the courses themselves often appear to be written by the same people that design tax returns, benefit forms or immigration documents. The clue is the way they veer wildly from mind numbing tedium that is little more than "can you manage to point the mouse where we tell you and copy theses letters" to the bizarrely perverse obscurity of which day of the week you are allowed to accept a $10, not $20, gift token from your grandmother and not declare it in a very large book kept in a safe three buildings away and in which colour pen.

The multiple choice questions that always end the "how fast can I click through this" course are also of a very predictable form. Three options are along the lines of "don't tell anyone unless it's inside information in which case leave it on the photocopier" and a fourth, the correct one, which contains the words "inform your Money Laundering Reporting Officer (MLRO) or line manager".

So bearing those prerequisites to a successful compliance assessment in mind Team Macro Man offer you their own version. As usual you have three attempts to achieve the 80% needed to attain a pass before you will be reported to compliance.

1) A man arrives in reception with a striped top on, a balaclava and leather gloves, says he has £75m he needs to deposit tom/next. He has no KYC docs, but plenty of KFC. Do you

a) Take the bargain bucket and the money
b) Take the bargain bucket only
c) Offer the Money Laundering Reporting Officer (MLRO) two pieces of chicken and a week in the KFC City branch all expenses paid.

2) As you enter your building you notice a senior member of management "slipstream" you through the security gate without using an ID card. Do you

a) Ignore it and carry on as it isn't worth the aggro.
b) Escort him back to reception and make sure he proves his identity before attempting to re-enter.
c) Rugby tackle him to the ground, then smash his forehead repeatedly into the genuine Italian marble flooring whilst whispering into his ear "This is for last year's bonus, arsehole" and screaming loudly "HELP HELP INTRUDER !!!!"

3) Ethel and Leonard Dalrymple , who normally trade their account once a year, call to say they have won €250mm on the Costa Del Sol Lottery and begin trading clips of €10mm a time on March 2013 delivery Lard futures , do you

a) Tell them it's normal for the bid /offer spread to be 20% of the cash price and deal anyway
b) Offer them a £500 a night, all expenses paid trip to Butlin's Bognor Regis holiday camp , with unlimited cava and Pringles in return for a sole new issue order.
c) Offer the MLRO a magnum of cava and a week in Marbella to let you open a safe custody account in your name.

4) You are in a nightclub whilst on a ski holiday in Zettmypantsonfeuer with friends and are approached by a svelte 22 year old blonde proffering Hedonist-A-Go-Go shares at a huge discount. A firm in which you have a controlling interest as a founding member: Do you

a) Accept the special offer and commission rebate without saying anything
b) Ask, slightly aghast, "do you know who I am?" whilst revealing your faux chamois leather thong and walk away from the deal
c) Offer the young Frau some "special advice" only available from your suite , and also partially do a) and b)
d) Report the incident to your MLRO on your return to the UK three days and three stone later

5) Your colleague Steve is shaking and sweating violently, his pupils are dilated and he has clear needle marks on his forearms. You notice him levering open the cash till and ask him if he is alright. He appears shocked by your approach and pleads with you to open the till or he's a dead man. Do you

a) Open the till for him and suggest he switches dealer to Pedro who isn't so violent.
b) Lock the door, pull out a reefer to share and tell him to just chill man, it'll all be ok.
c) Report the event to your line manager or MLRO as your colleague's behaviour is suspicious and out of character.
d) Action (c) but then ring them back amending your report as you realise that Steve's actions are actually in character as this happens most Monday mornings.

6) You have been appointed CEO for life of Hedonist-A-G-Go Plc after a long and bitter takeover battle which involved taking a poison pill to despoil your erstwhile hostile partners by over paying vastly for Wendy's Tasteful Flowers PLC (WTF). You have been approached by Appleby Inc(AI) who inform you off the record of a cancer gene being discovered in the petals of the blue Delphinium ( Bolluxia Sapphic Deum) and he knows you have a pending bid by a deranged asset stripper for WTF. Do you

a) Offload WTF as best you can to the asset stripper and pray AI s info turns out correct
b) Buy a majority stake in AI Inc asap and claim it was in house research
c) Send a huge bouquet of Blue Delphiniums to Bashar al-Assad signed "hugs from Mahmoud".
d) Report your quandary to your 23 year old Angelina Jolie lookalike MLRO.

7) Fidel Castro walks into your branch and despite his false nose, Kim Il Jun suit and Sudanese passport you have a suspicion that he is not who he appears. On checking his signature against the one you have on file you find that the "tittle" dotting the final j in Mahmoud Ahmadinejad is a full millimetre out of place. Do you

a) Ask him to have another go at the signature pointing out where the discrepancy lies
b) It's close enough, so you willing cash his cheque from from "Embargoed Oil" and make the payment to "Nukes 'R' Us".
c) You see a cross sell opportunity and introduce him to your Wealth Management department.
d) Inform your MLRO office and line manager as you have spotted a Syrian stamp in his passport,  Syria being a sanctioned country.

8) An old friend pops in to see you after a very long lunch at the City Club reeking of port and cigars and sporting classic red wine lips. In his battered brief case he has several large wads of grubby £50 notes. Swearing you to secrecy, he tells you there is about two million quid that he has been given as "Thank yous" over the years for various deals he did with friendly overseas defence ministries. Do you

a) Wheel him back to the City Club and blow as much of the contents of the case as you can on the oldest vintages on the list.
b) Suggest he invest it in a Jersey based OEIC because they don't check too carefully.
c) Remind him that you are an institutional Fund Manager and that effectively you don't get out of bed for less than £100million these days.
d) Ask your MLRO what is the most effective wash cycle for dirty £50 notes.

9) You are abducted unexpectedly from a strip club in Mayfair by Martians who inform you that in fact Rasputin/Beria/Stalin/Hitler/Mussolini/Pol Pot /Genghis Khan and Piers Morgan were all in fact closet bankers . You had just invested heavily in a charity, Bankers Easily Lie Lots, Endeavour Never Fails (BELL END) and had persuaded Great Ormond Street Hospital( GOSH) to invest all their monies with you before this was made available to the rest of the Human Race. Do you

a) Let GOSH go ahead anyway and hope that no one believes your story about the Martian Abduction was correct.
b) Persuade their leader, Vince Cable , that backing BELL END would be unwise as all the wrong 'uns in the known universe have always been bankers.
c) Over supper with the 22 year old ex Miss World MLRO let slip that you have a story unlike any before but that no one would believe you and did she have any contacts at The Daily Mail who might be able to help give the story some real clout
d) Ask for your LIBOR rate to be artificially ramped for sufficiently long enough to get away the option exposure on your Cliff Richard Ain't Perfect (CRAP) EBT

10) You are fiddling with the screen on your smartphone trying to text the details of the next M+A deal to your mates but accidentally switch on the camera mode as your other hand is opening the door to the stationary cupboard. On entry you trip over some discarded clothing which causes you to hit the shutter button. The flash in the darkened cupboard temporarily blinds you so you stumble back out and close the door. Back at your desk you realise that the resulting photo depicts your MLRO and line manager in a very compromising position. Do you

a) Delete the photograph as it is in clear contravention of your institution's obscene publication rules.
b) Report it to your MLRO and line manager.
c) Suggest a payrise and blind eye policy towards your future conduct would be a good idea.
d) Post it on a social networking site.
e) Suggest a threesome.


Please now complete the following survey 

Was this course easy to understand?
Did you find the assessment in line with our diversity agenda?
Was this course socially inclusive?
Were you happy that your human rights were not impugned?
Please consider the environment when completing this survey.

Finally, to complete the course, please sign the following declaration-

"I agree that should anything occur to encumber this institution with either reputational or financial costs due to lack of senior management oversight or failing policy, I will take sole responsibility and will willing be banged up for 20 years and used as the scapegoat leaving said senior management to continue with their self-aggrandisement".

31 comments:

Anonymous said...

this stuff is pretty close did you nick it from "complinet"

CV said...

Oh man, right on cue!

The whole office here is gearing up some of these compliance tests. Assinine!

Claus

Leftback said...

US GDP -0.1%, bit of a shocker, and clearly not in compliance with Happy Clappy market, but that's probably the Fiscal Cliff Panto and Not Quite Hurricane Sandy at work, and it is really ancient history now and today's ADP report came in fairly strong at 192k. Now a second quarter of negative GDP, that would be a real shocker, and that would mean we would all have to genuflect to ECRI.

Now, forget all of that real economy data stuff completely, as in macro terms the entire day turns on the FOMC statement anyway, and let's all get the Nuance-O-Meter out for any minutiae that may have altered since the last one.

Plenty of FX guys spouting off on TeeVee here today but the best comment was a simple observation on EURUSD by a bloke who said "look, the LTRO payback was essentially tightening policy, so it's going to keep going up and it will hit 1,4000 unless the Fed moves (even slightly) to tighten". One would imagine that somewhere in between 1,35 and 1,40 we are beginning to enter the Pain Zone for European exporters, not to mention the ongoing pain for peripheral citizens.

Anonymous said...

ADP sidenote: current was 192k vs 165k expected but the previous figure was revised down to 185k from 215k. Basically they shifted 30k jobs (even a bit less) from one period to the next. The headline figure is not quite as strong as it looks.

Eddie

Anonymous said...

Bears reaching hard it seems. GDP details were not as bad as the headline figures would make you think

I am more worried by the flow surge and the possible tactical retreat than by the overall idea that the environment is favorable to risk.

As for the EUR, I would agree with the above, long "core" equities AND the euro does not look like a sensible proposition (2008-2012 Japan as a case in point).

DD

Anonymous said...

Anyone cares to handicap when the shiny metal will join CHF and the likes in the safe haven cemetary?
DD

Leftback said...

Happy Clappy Time for equities might come to an abrupt end today if the FOMC statement has ANY mention whatsoever of "tapering", or any word that might be in any way misconstrued as being anything like tapering, or in any way connected to the possibility of future tapering.

Bonds seem to be in a bad place here. The chart for TLT looks awful. Any language today about the US economy improving and they will sell off, a decent jobs number Friday and they will sell off, and anything the Fed say about reducing future purchases and they will sell off. That 2.25% level on 10s and 3.30% on the 30 looks like the most inviting place for the market to settle if the YC does make the next big move.

Otto said...

On the EUR/USD and the Euro Area. Post-99 correlation suggest that REER moves show up quite a bit later than you think. Also EUR/USD levels overstate the EUR's strength given levels of EUR/NOK, EUR/CHF and so on. My charts suggest that EMU sentiment will start to underperform by summer. For now. EUR/GBP will head higher (on a further weakening of relative data), as should the EUR/USD.

Leftback said...

Much Ado About Nothing at FOMC again.

Bond looks as though he will Live And Let Die for today, while the SPY Who Came In From The Cold may be about to go South of Heaven, West of Hell. Still, one feels that Bond will Die Another Day.

Goldfinger looks vulnerable too, but Bucky will have to have a bit of a run before the villain goes out the window of the plane without a parachute.

I'll get my coat..

Anonymous said...

C Says
Re Japan the drop in the JYen and the increase in the Equity markets looks to be approximnately what you would expect in terms of ratio.
So no flags flying yet. I'm going to be interested from a longer term view to monitor the correlation. Inparticular I would be interested to see if at some point the JYen continued to drop ,but equities did not continue to rise.

Anonymous said...

Don't look now but mom and pop's favourite US credit vehicles (HYG, JNK and even LQD) are not amused by what they are seeing on the rates side. Whether this means the consensus great rotation thesis is playing out or the first signs or flows indigestion are showing up, we will know very soon.
DD

amplitudeinthehouse said...

Pol, this post has brought me out of hibernation..( it's a one off!)

Having left school and immersing myself in an industry that threw bad money after bad as it sailed past the winning post many lengths from the winner...and having developed a good eye for the wannabes and smarties. It was only the other day when thinking of my next destination, that having lived in the CBD of one of the major capital cities in the world ....for the life of me I can not see any black money slivering through the economy...It's been ten years since I've ventured into a nightclub, another ten since I've sat in a decent restaurant, ten years since I've been to the track.. It makes no difference....I can see it....god help USA!

Anonymous said...

C Says'
DD, there's a well trodden route for the reaction to the narrowing of spreads. It's been a bit suppressed in certain quarters whilst the Eurozone crisis was on fullbore. A return might not actually be a disaster except to the latecomers.For others depending upon how far it goes it could simply be a very nice reset point.And no I don't yet have much belief in todays fairy story that equity will be de jour from now on.
I can understand why the people saying that might wish to say it. I think they ignore demographics and still underestimate how Europe has not gone away.Merely retreated.
Indeed,it doesn't even have to be a European story to recreate a go stop story oin equity.there are no shortage of other candidates.

Leftback said...

The much touted US housing market recovery is about to hit the skids. Even modest rate increases and price rises are going to bring this thing to a shuddering halt, and it won't be long before the banks have to start feeding another bolus of REOs in to the market. Another False Spring, we suggest.

US Mortgage Rates Rise

We are short the XHB and we think this is a really delicious short, based on high valuations and the prospects for the rest of the year. These stocks are priced for 2005, which was the height of the madness, but we think the story for 2013 could be a lot like 2010.

In this scenario, the sell-side screams "Recovery", reflation trades are hyped, certain stocks attain nose-bleed valuations and bonds are sold steadily until a mini-panic in bonds causes rates to spike, peak early in the year and then wiser punters head back to the safety of the highest grades of fixed income, while for equities it is Sell in May (or even earlier) leaving Mickey Margin to his usual fate.

Leftback said...

Way too much of this Cheerful Chappy stuff in media:

The R Word

Anonymous said...

C Says'
Bear.I'll give you bear.My coffee machines broken today and I have not had a fix all day.Grumpy bear doesn't come close!

Anonymous said...

CSays'
Rotation has worked almost textbook into and through the earnings season. Here in the Uk we've almost got most of the big guns done.Banks to come of course. The seasonal trade into the reporting was excellent,but as the opening salvo of the new period(year) tapers away and surprises lose their impact being priced in minds will quickly turn to other imminent issues as we open Feb.

I think the wall to wall "Cheerful Chappy" will rapidly become noticeable by his absence. Unfortunately,there are still many people who read that crap and will have had their "animal spirits" ignited by it.Fortunately they provide a good buying crowd.

Leftback said...

Overbought conditions, Cheerful Chappy, Silly Season stocks leading, but now retreating, Rotation into Defensives beginning. It's fairly textbook. Innit?

Almost All Dow Stocks Overbought

Anonymous said...

Reducing direction and buying "cheap" gamma continues to work well for this modest punter, as buyers of the former and sellers of the latter abound.

And guess what, some of those cheeky plays already in the book are actually not decaying as fast as we feared.

DD

Leftback said...

LB agrees with the general thesis on reducing direction and buying cheap gamma, but will be happy when some of his cheap gamma stops becoming even more cheap and starts becoming less cheap....

After all, sellers of vol can't win all the time, can they? Just most of the time....

Anonymous said...

C Says'
Coffee is flowing again so I'm calm for the weekend.
We're in the moneyflow sweetspot again.Usually the worst time to be short equity.So it's going to be a tell how this goes over this few days.Should serve as a litmus test to guage whether we have flowed the New Year out yet sans some risk correction.Or whether we are still riding the whoopy doo roller coaster
Big energy coming today in the US. If Shell were any kind of precursor for them it will be interesting,because thereis still a little shout on for late cycle growth sectors that have lagged.

Leftback said...

Bland number for the US jobs report and all the Treasury shorts got squeezed. Still long Europe here, but EURUSD is surely sitting up in what Americans call the nose bleed seats at this point and there must be a lot of pain among EU exporters to the US, Japan and China. 1,40 would be max pain, surely?

Our favourite risk barometer, EURJPY, not to mention GBPJPY, have gone f*cking parabolic of late, so while we are still long EU equities, clearly an accident is out there waiting to happen. But we will wait a bit and see how far this can go.

The US jobs number was essentially zero ± error yet again, probably a Goldilocks reading for Treasuries and corporate bonds - but that doesn't mean to say we won't see a move to the exits in equities soon. The US market is heavily overbought. The rally in things like homebuilders has been based on the idea of a strong jobs recovery driving demand for housing, and we all know that isn't happening.

This number isn't the trigger for a large bear move (which would be the result of cessation of Fed liquidity injection after strong job growth) but it might be the start of a short-term correction. This is seasonally a soft time of the year for a lot of US industries (transports, discretionary retail) and let's face it, those Q1 earnings we see in April and May are never very pretty.

Man, I sound like Rosenberg today... or Gary Shilling. Love the long bond!

Leftback said...

EURUSD 1,3700, the insanity continues.... are we seeing a blow-off top here? EURJPY now at a level not seen since Spring 2010, which was a top in equities....

Anonymous said...

Lots of structural exit, great rotation and "2000-2012 is over" talk out there.

I say we revisit our good old friend liquidity trap (feared or real) one more time. Romer & Romer, Brent 120 or hell why not, Yoorp ... make your pick.

Small longs, decent gamma is the way we want to play this. And if the convexity hedgers and the 1994ers are so willing to sell us US10 in the say, 2.5% area, we'll happily oblige.

Have a good theta burning weekend.

DD

Anonymous said...

Also, really looking forward to that SuperMario press conference I must say.
DD

Leftback said...

Dow 14k.... but a look at EMB and JNK suggests that all may not be well in credit land. It usually takes a little while for that to feed through to equities.

Another great day to take some risk off the table?

Leftback said...

A friend alerted me to this article (thanks, Gus):

http://blogs.wsj.com/eurocrisis/2013/02/01/the-euro-raging-bull/

Are the last and dullest Tools in the shed finally just now coming around to the non-death of Yoorp? If so, then it really is time to fly the coop. Today has all the elements of a panic buy.

Super Mario is not likely to be on board with this disorderly move in FX. A good mid-size bank solvency panic will stop this panic buying in its tracks. Monte Paschi, your day in the spotlight is here, or they can throw one of the cajas to the wolves... got popcorn?

Saul Bollox said...

'ere 'oo let all them bleedin' flamingoes out?

abee crombie said...

cheers LB I hadnt noticed the EMB drop, though I had been playing the HYG... got my offer in EURJPY at 130.

Markets are just setting themself up for 2H growth dissapointment. Oil we be a drag, EU still in dumps, especially the periphary which needs it the most. A stronger Germany only worsens the eventual outcome, but is OK for now, and China is a bigger accident waiting to happen than most see.

Go with the flow for now, but 1440 in S&P is my stop and reversal point.

As an aside, XHB is expensive and home rally is greatly overplayed but I dont see any reason to get massively bearish. home builders will keep surprising on upside for while. Margins on new homes will stay elevated bc those buyers who want a new home dont have so many choice now

Leftback said...

Good points, all.

There is a school of thought out there (Doug Kass, for example) that says the high is going to be in early in the year this year, b/c either

1) the US data sucks a lot more than we expect in Q1 due to austerity or we get an external shock from the usual areas, and we sell off in the Spring and retreat once more into the dismal liquidity trap and financial repression as the Reinhart/Rogoff deleveraging continues (LB's favoured view), or

2) we get some indication that the US can actually reach Escape Velocity, in which case the Fed will shut down the liquidity fire hose and we have a monster dollar rally and equity conflagration ( the view espoused by the real bond bears).

In any case, we think a short-term correction is on the cards, probably in time to prevent a complete deb√Ęcle at the next auction of 10s and 30s.

Bretton James said...

To that end, LB, every piker will be trying to buy the dip, extending the duration of the 'pain trade' in the same way said trade has been melting us up seemingly ad nauseum. Human nature is a double edged sword, in other words.