Behind the Swap: The Broken Infrastructure of Risk Management and a Framework for a Better Approach

Andrew DeJoy’s Behind the Swap examines the risks involved in post-trade processing in swaps and derivative markets, and provides solutions to better control those risks. While Andrew doesn’t claim to have all the answers, he does believe there is a way to create a safer, stronger, and better financial system for all stakeholders.

 

In August of 2020, Citibank made one of the worst mistakes in banking history: it accidently sent out almost $900 million of its own funds. Many of the recipients didn’t give back the money. Citibank sued. And a federal court ruled that the recipients could keep the funds.

Citibank’s error is not surprising. The underlying contributors that led to the mistaken payment permeate the global financial services industry. Manual data entry, decades old technological infrastructure, inadequate training, and systems that can’t interact with one another are just a few of the problems that face post-trade processing—the machinery behind financial markets. Unfortunately, years of neglect by regulators and financial institutions themselves has left this infrastructure needlessly complex, astoundingly inefficient, frequently inaccurate, and woefully inadequate for modern financial markets.

Behind the Swap helps explain what’s driving the recent series of banking blunders like Barclay’s $678 million clerical error, and Citibank’s fat-finger Flash Crash that caused an 8% decline in the Swedish stock market. The book also touches on concepts that readily connect to Credit Suisse’s $5.5 billion loss on its trades with Archegos.

The problems are easy to see but difficult to admit. For financial institutions, the current system costs billions of dollars each year in labor, systems maintenance, and lost funds. For regulators, the current system precludes the ability to track systemic risk. It also artificially inflates the stability of the global financial system. For lawyers and prosecutors, the current system allows ample opportunity for unlawful misconduct such as rogue trading and fraud.
 

Andrew DeJoy is a theorist and practitioner in the field of operational risk management in financial institutions. His interest in financial operations began while conducting regulatory research at a major think tank. There, he used quantitative metrics to study the amount and severity of regulation within the Code of Federal Regulations. He particularly focused on the impact of regulation on economic recoveries after banking crises. Andrew continued to build his expertise during his time as a middle office analyst for OTC structured products within one of the world’s top hedge fund administrators. He was responsible for trade capture, lifecycle events processing, reconciliation, and settlement for various categories of products including total return swaps, credit default swaps, interest rate swaps, and swaptions. From his perspective closest to the trade, Andrew experienced first-hand the structural problems facing the machinery of financial institutions.

Andrew is currently a student at Duke University School of Law. He has passed multiple FINRA qualification exams and has several designations from the Corporate Finance Institute. Andrew’s unique and interdisciplinary experiences guide his approach to the financial services industry.

Andrew graduated early from Duke University with a major in Public Policy Studies, a minor in English, and a certificate in Innovation and Entrepreneurship. When not thinking about financial operations, Andrew enjoys sharing his experience with others and helping younger people grow and develop in the classroom and beyond.