Risk Management by Securities Settlement Agents

As developing countries search for ways to promote capital formation through the establishment of organized exchanges, they will need to pay more attention to the role of risk management in the securities settlement process. The delivery-versus-payment (DVP) agents that facilitate the process of exchanging securities for funds in most world markets have both the incentive and comparative informational advantage to monitor, measure, and manage risks inherent in the securities settlement system.
Unfortunately, most DVP agents have accomplished this task to date through the cumbersome use of position and net debit limits, capital requirements, and collateral requirements. Such limits and requirements are almost everywhere based on relatively arbitrary criteria that may have no relation to the actual replacement cost, principal, or liquidity risk of the transaction, portfolio, or participant on which they are imposed.
To remedy this shortcoming in the current state of risk management at DVP agents, this article holds out the possibility of integrated, comprehensive risk management processes that emphasize and rely on forward-looking measures of risk for individual brokers and across brokers. Many risk measures could serve the settlement agent's purposes, including "value at risk" (or "VaR"), "below target risk,""below-target probability," and "downside semi-variance." The actual summary risk measure used for risk monitoring and control is not as important as the methodology used to generate that risk measure. "The goal of such a process," as the authors put it, "is to ensure that the risks to which a settlement agent and its residual claimants are exposed are those risks to which the agent's shareholders think they are and want to be exposed."     

Application of nitrogen and phosphorus criteria for streams in agricultural landscapes

Efforts to control eutrophication of water resources in agriculturally dominated ecosystems have focused on managing on-farm activities to reduce nutrient loss; however, another management measure for improving water quality is adoption of environmental performance criteria (or 'outcome-based standards'). Here, we review approaches for setting environmental quality criteria for nutrients, summarize approaches developed in Canada for setting 'ideal' and 'achievable' nutrient criteria for streams in agricultural watersheds, and consider how such criteria could be applied. As part of a 'National Agri-Environmental Standards Initiative', the Government of Canada committed to the development of non-regulatory environmental performance standards that establish total P (TP) and total N (TN) concentrations to protect ecological condition of agricultural streams. Application of four approaches for defining ideal standards using only chemistry data resulted in values for TP and TN spanning a relatively narrow range of concentrations within a given ecoregion. Cross-calibration of these chemically derived standards with information on biological condition resulted in recommendations for TP and TN that would likely protect aquatic life from adverse effects of eutrophication. Non-point source water quality modelling was then conducted in a specific watershed to estimate achievable standards, i.e. chemical conditions that could be attained using currently available and recommended management practices. Our research showed that, taken together, short-term achievable standards and ultimate ideal standards could be used to set policy targets that should, if realized, lower N and P concentrations in Canadian agricultural streams and improve biotic condition.     

Participatory appraisal approaches versus sample survey data collection: a case of smallholder farmers well-being ranking in Njombe District, Tanzania

Social scientists and rural development interventionists inTanzania and in Sub-Saharan Africa depend mainly on conventionalsample surveys; in part this is a legacy of their basic training.Participatory rural appraisal and intervention approaches offera varied range of methods. We ask ourselves whether the resultsfrom participatory, rapid appraisals are conflicting and differentto those from sample surveys? This paper compares results ofa Rapid Participatory Rural Appraisal (PRA) with a conventionalsample survey. These surveys were conducted at the end of 1995and mid-1996 respectively, to establish socio-economic well-beingranks in Njombe district. A comparison of results shows thatthe well-being ranks established using PRA are valid and theapproach is reliable. The three qualitatively established well-beingranks differed empirically in many socio-economic indicators.These include resource endowment, labour force size, agriculturalland, livestock ownership, forest woodlot management, perceptionof food insecurity, technological advances in agricultural productionand natural resource management systems. Results show that thelow well-being group and female-headed households are disadvantaged.The goal of the Hifadhi Ya Mazingira-Njombe project is to developenvironmentally sustainable crop and livestock husbandry practicesin the district. The well-being ranking exercise has strongimplications for the project's strategy. We discuss the adoptedmethodology and implications. The paper recommends that developmentprogrammes and workers in Tanzania and Sub-Saharan Africa oughtto extend their approaches. It is time to include more of theparticipatory, relatively rapid rural appraisal and interventiontechniques. Benefits that they may accrue are time saving, lowercosts, quality information and stakeholder involvement.     

FINANCIAL INNOVATIONS IN LEVERAGED COMMERCIAL LOAN MARKETS

In the last decade, three innovations in commercial loan-based securities and derivative have enabled institutional investors to access commercial loan markets on leveraged terms : collateralized loan obligations (CLOs); loan-based total return swaps; and leveraged loan-based structured notes (LLSNs). These innovations have been driven by a combination of structural changes in the banking industry, enhanced technology for securitizations, reformed banking regulations, and the advent of credit derivatives.
Besides providing new investment opportunities for institutional investors, these recent innovations in loan markets also promise to reinforce the existing trend in banking away from financial intermediation and toward information intermediation. Such a trend, the authors argue, is helping to ensure the long-run viability of commercial banks. By transforming loan assets in the ways described in this article, banks can generate fee income instead of interest income (thus limiting their capital requirements and interest rate and credit exposures) while still exploiting their comparative advantage in credit analysis and monitoring.     

Education and the natural rate of unemployment

We show how changes in the educational composition of the labourforce affect both the level and the behaviour over time of aggregateunemployment series. We also demonstrate that if it had notbeen for such changes, the US unemployment series would look'European' since the within-group unemployment series all havethat same appearance. We derive a natural-rate model of unemploymentfor two education groups, providing microfoundations for inter-groupdifferences in wages and unemployment, and evaluate its plausibilityin light of microeconomic evidence.     

An ecological causal assessment of tributaries draining the Red River Valley,Manitoba

Water resources on the Canadian Prairies are at risk due to human settlement, agricultural intensification, and climatic change. The Red River Valley (RRV), Manitoba, Canada, represents a nexus of these cumulative stressors. Here land use change, combined with a recent increase in precipitation and runoff, imperils the protective function of tributaries draining to Lake Winnipeg. A concerted research effort over the past decade has greatly improved availability of data and knowledge about the RRV. However, a full synthesis of these data and information remain lacking. We undertook a review to identify and compare contemporary and historical land use, climatic, hydrologic, and water quality condition within the RRV. Then, using current knowledge of the ecological condition of streams in the RRV and elsewhere, we completed an ecological causal assessment of RRV tributaries to identify linkages and knowledge gaps between anthropogenic drivers and ecological endpoints. We found wastewater to be the candidate cause of ecological effects in RRV streams best supported by empirical evidence. A lack of complete lines of evidence linking agriculture, the greatest diffuse source of nutrient inputs, and ecological effects in RRV tributaries underscored a need for stressor-specific indicators and improved biomonitoring strategies to better detect likely impacts of land use. We also identified a need for research to connect well-known causal elements in the RRV, such as climatic variables and hydrological alteration, to ecological effects. Our findings provide direction for future research and can aid in development of an adaptive management strategy for tributaries of the RRV.     

Welfare policy and the transformation of social security in South Africa

Social security is based on the belief that all citizens should be protected by the state against the main vicissitudes of life: old age, unemployment, disability and sickness. The success of welfare programmes internationally in improving poverty, income distribution and unemployment is appraised. Income maintenance in South Africa, which is discriminatory and ineffective in meeting real human needs, is examined. Although welfare should not promote dependence, neither should it be so hard to come by as to punish the poor.     

On the efficiency of stock-based compensation

When the market can observe the profitability of all projectswith equal precision, then with stock compensation (i) the weighton any given project in managerial compensation is independentof the marginal productivity of effort in the project; (ii)the projects that are the noisiest indicators of managerialeffort receive the most weight in compensation; and (iii) investorshave the greatest incentive to collect information about projectsthat are the noisiest indicators of managerial effort.