Rottura euro- il giorno dopo By WSJ

[NuovaEra2012]

By Vincent Cignarella


Everett
You are asleep, tucked snugly in bed in New York. It is 2:00 a.m. on Monday morning. Suddenly the phone rings, and it’s the office cell phone. You are shocked out of bed. Your heart is racing.

When that phone rings at that time of the morning, it cannot be a good thing.

The FX manager on the other end of the line is screaming, “Greece has left the euro, the rest of the periphery is teetering, the markets are panicked. Get into the office. Now!”

A bit dramatic. An impossible scenario, most market participants still think. But that’s not stopping numerous banks, brokers and clearing houses from preparing contingency plans for such an event. They are thinking about how to trade the old legacy currencies, figuring out ways to make settlements in drachma rather than euros, etc.

So, how prepared could institutions ever be for this, not to mention the now wide-awake trader? Not very.

In a report last week, UBS Chief Economist Larry Hatheway described most institutions’ contingency plans for a post-euro world this way: “That’s like asking Wellington to stress test his army against a scenario where Napoleon has a B-52 at Waterloo. You don’t reposition the troops — you retreat as quickly as possible across the Channel, if not across the Atlantic.”

That’s perhaps why those with a stake in all this intrinsically assume that a euro breakup is highly unlikely.

Euroclear, the pre-eminent provider of post-trade clearing services for pretty much every type of transaction in Europe’s financial markets, believes the scenario of “an accident” causing a country to abruptly leave the euro has “a zero probability of occurring,” according to Denis Peters, director of marketing & communications at the firm.

Euroclear believes any decision to leave the euro would be “managed on an orderly basis,” he said.

It is safe to say this is the majority view. The consensus position is that a euro breakup would be so traumatic and so expensive that no government will make the decision to leave.

But not everyone feels this way.

Jens Nordvig, head of research and G10 strategy for Nomura securities, believes an accident is exactly what we need to worried about. If the euro were to fall apart it would, almost by definition, be triggered by an unplanned event since no one wants it to happen.

In a conference call Wednesday, Nordvig cited the prospect of Ireland voting “No” on a referendum to pass EU treaty changes, as one possible trigger for such an accident. Another would be a French rating downgrade. Both are very real possibilities — the latter may even come in a matter of hours if we are to believe the rumor mill.

The folks who deal with the plumbing of international payments say it would take a year at least to have payment systems for legacy currency trading fully in place. None of those systems exist anymore. They were discarded because they were too expensive to maintain. And of course no one thought they’d be needed.

When I asked an operations manager at one of the world’s largest foreign exchange trading banks how they would deal with a sudden breakup in the euro, he told me, “we are screwed, we are not ready, we have just now started talking about this”.

Whenever banks start trading a new currency — or in this case, a new “old” currency such as the Greek drachma or the Italian lira — it needs an up-to-date history of that currency’s past performance to gauge the volatility function that will go into its value-at-risk models. Without that, it is impossible to assess trading risk and thus to properly price currency pairs.

Banks would find a way around that problem for these hitherto untraded European currencies, of course. But it would be a laborious process and bid-ask spreads would be ridiculously wide. The disruption to global foreign exchange trading would be profound and its impact on global trade would be brutal.

As another operations manager put it, “payments would be made, they would have to be made, we would key them in by hand if we had to. But the whole process would come to a crawl.”

The day after that 2:00 am phone call would not be a fun one.

[fdg86]

Vabbè, sti funzionari quantitativi delle banche mi paiono un po' rigidi. Non sanno la volatilità e vanno in panico? Ma se già ora non esistono modelli decenti per stimare la volatilità...