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Funding valuation adjustment (FVA) is the funding cost of hedging an uncollateralised client trade.
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And client trading can cause losses, too.
The rules envisage limiting that to the expected near-term demand for client trades.
Soon afterward, major exchanges where MF Global does business said that they had suspended the firm from guaranteeing client trades.
Schwab said that total client assets were $1.432 trillion at the end of February, up 37 percent from a year ago, but that client trades were down 14 percent.
This was supposed to be a high-volume, low-margin business, making money on a bid-offer spread on client trades, with a little arbitrage on the side.
Bloomberg News reported that employees had been manipulating the rate by pushing through client trades before and during 60-second windows when the benchmarks are set.
Goldman has been boldest, taking record amounts of risk last quarter though mostly for client trades, not its own book, it insists.
Michael DuVally, a spokesman for Goldman Sachs, told me, "Our sales teams naturally make an effort to understand how client trading strategies perform over time.
But taking the fourth quarter separately, profits at Goldman Sachs were down 7% on a year earlier after revenue fell in each of its four divisions – investment banking, client trading, lending and fund management.
Inadvertently included in this was an unredacted version of an earlier filing by Overstock containing excerpts of e-mails from Goldman and Merrill employees.In these they discuss deliberately failing to settle client trades.
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