TIME for an April Fool joke? If only….

It’s Easter Monday. Europe is closed. The US wishes it were.  Along comes this scary headline…which is even scarier because it’s from a column in TIME written by a contributor: Why Derivatives May Be the Biggest Risk for the Global Economy.

We furiously click through the link to get to the entire article. We read through it, drawing nary a breath. We see claims (with absolutely no attribution or substantiation) that the OTC derivatives market is bigger than the BIS says it is. Which means the risks are even greater than many had supposed.

We are puzzled.

And then we come to the piece de resistance, the giveaway:

“…in theory, at least, the total losses could add up to more money than there is in the entire world.”

A moment of clarity descends upon us. We “get” it.

It’s April 1. The column is an April Fool’s Day prank.

It has to be…because the story simply makes no sense. The venerable TIME would never run a column that confuses its facts so badly. It mixes up notional amounts outstanding with the level of OTC derivatives risk outstanding (which is properly measured by market value). If you do a $100 million interest rate swap, you agree to exchange payments based on the $100 million notional amount. You don’t actually exchange the $100 million.

We know people sometimes find OTC derivatives confusing, but we had imagined that by now just about everyone gets this point (or at least everyone with the yank to write a column in TIME). Notional does not measure risk. In fact, the amount at risk in OTC derivatives typically averages about 4% of the notional outstanding. And it’s less after you factor in collateralization and netting (about 0.2% of notional).

Unfortunately, the misguided notions on notional are not all that’s wrong with the column. It also fails to recognize the significant growth in central clearing, the progress made in increasing regulatory transparency, the continuing efforts in collateral management – all of which help to reduce risk.

We’re glad April Fool’s Day only comes once a year.

Nothing to Hide

John and Sally like to trade with each other. They have conducted five derivatives trades. In three of the trades, John owes Sally $1 per trade. In the other two, Sally owes John $1 per trade. How much do John and Sally owe each other?

A. John owes Sally $3.
B. Sally owes John $2.
C. John owes Sally $1.

The correct answer – in jurisdictions in which the counterparties have signed ISDA Master Agreements and in which netting is legally enforceable – is C. And C is what firms that follow the US GAAP rules report on their financial statements (the “FASB approach”). Under IFRS rules, they would report A and B.

As the example makes clear, netting is a simple concept. Yet it remains subject to misunderstanding, as this recent article indicates.

Readers will recall we wrote on a similar topic not that long ago, so we won’t repeat our basic argument on the accounting treatment of netting here. But we do think it is important to point out a few additional facts.

First, as we stated in a paper on netting in 2010:

“the effect of the netting agreement is to treat all transactions done under it between two parties as a single legal whole with a single net value.”

This point is worth repeating because all transactions under an ISDA netting agreement will net to a single amount upon a counterparty event of default.

Another point worth repeating relates to the legal strength of the netting agreement. ISDA currently has 55 legal opinions on the enforceability of the Master Agreements netting provisions. And the close-out netting provisions of the ISDA Master Agreement have never, to our knowledge, been found to be unenforceable in instances in which ISDA has published an opinion confirming such enforceability.

In other words, netting is the law, netting works and netting accurately reflects the risks between counterparties. That’s why we believe the current FASB approach – which provides financial statement users with the net amount of exposure – is more accurate and transparent.

One final point: the first quarter of 2013 is the first period in which derivative market participants will provide expanded derivative disclosures. US GAAP filers already provide detailed derivative netting disclosures; and will provide further derivative netting information that would be achieved upon a counterparty event of default that cannot be recognized on the balance sheet today. IFRS filers will be required to provide detailed disclosures for the first time. So it will be interesting to see in the IFRS financial statements how much netting currently is being done and is already incorporated in them.

We’re sure there will be yet another round of comparisons between the two accounting approaches in the weeks to come. And that’s a good thing – it’s yet another opportunity to explain what netting is, how it works, and why ISDA has spent so much time and energy on it.

The Net-Net on Netting… and Risk

We’re the first to admit it: accounting isn’t easy… and that includes derivatives accounting. But it’s not exactly rocket science, either.

So we always feel mixed emotions (equal parts sympathy and dismay) when an article tries to cover an important derivatives accounting issue. A case in point: the recent Bloomberg story, US Banks Bigger Than GDP as Accounting Rift Masks Risk. The article is basically a criticism of the current US accounting treatment of OTC derivatives. We published a paper on this not long ago.

The US Financial Accounting Standards Board (FASB) permits the netting of exposures between counterparties on financial statements. This treatment mirrors the fact that in a number of jurisdictions, “netting IS DA law” (as we like to say around here). This means that netting is legally enforceable – a fact of law – and recognized as such by courts, regulators and market participants.

As a result, the accounting, legal and regulatory views on netting for US-based companies are aligned. So the outlier in this situation is actually the International Accounting Standards Board’s rules. These rules ignore the legal and regulatory consensus on netting and require firms to report their gross positions.

One result of all of this is that non-US firm balance sheets are larger than US firms’. We believe this ballooning of the balance sheet is artificial by virtue of the inclusion of both gross derivative assets and gross derivatives liabilities. The net amount is a better reflection of risk. For this reason, financial statements based on the FASB rules are more transparent.

Another result of the differences in approach is that firms deal with investors who are familiar with one, the other, or both sets of accounting rules. So firms also publish in their annual financial statements information that would be required if they followed the other set of accounting rules. In other words, firms that reflect net exposures in their balance sheets disclose the gross numbers in the footnotes.

That concludes the sympathy part of the emotional equation. Now on to the dismay part.

Despite what the Bloomberg story’s headline claims, risk is not being masked by the FASB rules. What’s being masked (in the story, at least) is the role of netting in reducing risk. In addition, in commenting on the size of derivatives exposure, the article could have made it clear that it was referring to notional amounts outstanding, which are not an accurate reflection of risk. As the BIS has published (and as can be seen in our
most recent Market Analysis
), the gross market value of outstanding OTC derivatives (at June 30, 2012) was about 4% of notional. After factoring in the impact of netting, credit exposure was 0.6% of notional. Collateralization reduces that credit risk even further.

So, net-net, netting does not mask anything. It actually presents the true face of risk.

A Sensible Approach

We admit it. We like headlines like this one − It’s Time for Sensible Regulation of Derivatives – which we first came across on The Exchange, a Yahoo! Finance blog.

But as it’s a blog (like media.comment), we weren’t too excited – until we saw that one of the authors was Martin Neil Baily, former chairman of the US Council of Economic Advisors. Dr. Baily (who served in the Clinton Administration) and his co-authors (who served in the Obama Administration) support derivatives activities:

“The bulk of derivatives are interest rate swaps, credit default swaps on corporate bonds and municipal and state bonds, commodity price derivatives, and currency swaps. These markets did not break down in the crisis and did not contribute to it.”

The authors also support prudent derivatives regulation, and “want to get that regulation right.” They are concerned, though, about some aspects of regulatory reform.

“It is worth asking if the myriad of rules put into place in Dodd-Frank to regulate derivatives can work together effectively and coherently. Congress, and the Financial Stability Oversight Council, should ensure that the different regulatory bodies work together to craft consistent rules of the game. Tackle the problems that emerged in the derivatives market and improve the economy’s stability, while still reaping the economic benefits derivatives can and do provide.”

It stands to reason: to develop effective derivatives regulation, we need to accurately understand the problems we are trying to solve. What are those problems? As Dr. Baily noted last month in a Brookings Institution conference on the purposes, structure and regulation of the financial industry:

“I think derivatives maybe have been…overstated a bit in their influence on the crisis. Like many historical crises…the one we’ve been going through I think was fundamentally caused because financial institutions bought and held bad assets…”

He went on to note:

“…I don’t think derivatives are the main story and I think all derivatives should not necessarily be viewed as toxic as Buffett said…”

One of the major issues related to derivatives in the financial crisis, he said, was “We didn’t know enough about the derivatives that were out there, who was holding them, what the implications would be…there was a real lack of information.” This concern helped give rise to the establishment of trade repositories to which market participants report their transactions, providing regulators more and better and deeper transparency on exposures and activities than ever before. (The need for regulatory transparency is why we oppose fragmentation of trade reporting and repositories, as outlined in our recent letter.)

The other major issue noted by Dr. Baily was AIG’s credit default swaps. As we have written elsewhere, the AIG situation reflected a failure to adequately measure and manage liquidity and collateral requirements. Had a robust variation margin framework been in place, AIG’s bail-out likely would have been averted.

Sensible indeed.

Initial Thoughts on Initial Margin

A recent speech by the Federal Reserve Board’s Vice Chairman appeared to get the New Year off to an inauspicious start for OTC derivatives markets. Initial reports of the speech indicated that it called for tougher regulation and treatment of derivatives, including a requirement for initial margin.

Bah, humbug.

But then we actually read the transcript, and felt a little better. There are some key aspects to the speech that we agree with.

First, there’s recognition about the benefits of a robust variation margin (VM) framework and its role in achieving an important public policy goal:

“The [VM requirement] codifies current best market practice, since the largest derivatives dealers already exchange variation margin daily. However, and importantly, the framework extends this prudent risk-management practice to other derivatives counterparties. Requiring timely payment of variation margin will go a long way toward ensuring that an AIG-like event will not happen again [emphasis ours], since current exposures will not be allowed to build over time to unmanageable levels.”

Second, there’s acknowledgement of the impact that initial margin (IM) requirements will have on liquidity and on the cost and availability of OTC derivatives to end-users: “higher initial margin requirements will make it more costly for market participants to use derivatives to hedge risk.”

Another key point: the speech notes that “requiring less-liquid and highly customized derivatives to be cleared would likely increase systemic risk …” But that’s because the risk management practices of CCPs are not well-suited to manage such risks – and not because the risk of such instruments is unmanageable (for more on this, see our December letter to BCBS-IOSCO on Margin Requirements For Non-Centrally-Cleared Derivatives).

There are, to be sure, some points that we disagree with. And there are some that we really disagree with.

We don’t, for example, believe that IM will reduce systemic risk. If done improperly, it could actually be highly pro-cyclical and increase systemic risk.

And we also don’t see how margin requirements can “diminish the incentive to tinker with contract language as a way to evade clearing requirements.” This notion ‒ that IM is needed to enforce or incentivize clearing ‒ has taken hold in some circles to justify the imposition of IM, but we don’t think it lines up with the facts. Clearing has happened, is happening and will continue to happen because it is a cost-effective means of managing risk through standardized products.

As we stated in the letter to BCBS-IOSCO mentioned earlier: “If a transaction is not clearable, then no amount of IM can cause it to be cleared. If it is clearable, then legal mandates – and not punitive IM – should drive clearing. If a high level of IM is the tool used to try to incentivize clearing, not only would such a strategy fail, but there would be…. potential adverse ramifications.”

2013 looks like a year in which we will be talking a lot about margin requirements. We’re not sure if this will keep us merry and bright over the next 12 months, but it should keep us busy.

Back To The Future

Everyone in OTC derivatives is so busy preparing for the future that we wonder if it’s even worth going back in the past to reexamine some popular assumptions about the financial crisis.

But, in light of a couple of recent developments, we just can’t resist.

First off, witness the exchange that took place recently on CNBC’s Mad Money between host Jim Cramer and his guest, AIG CEO Robert Benmosche. They are talking about the events surrounding AIG’s financial difficulties in September 2008 (starts 8:27 into clip).

Benmosche: …the issue was not capital. The issue was cash. They didn’t have cash.

Cramer: Right, did they have the collateral for the…

Benmosche: They actually had the collateral, but the question was they had no window to go to, because they weren’t a bank until afterwards. Had the same been given to AIG that was given to other companies after AIG got the bailout—as you know, some of the investment houses were given access to the Fed window; other large institutional companies were given access to the Fed window. Had AIG had the same access, I believe that would have solved the liquidity crisis they had.

Cramer: So it wasn’t that bad off, then. It was just a question of the moment in time.

Benmosche: It was cash to meet collateral calls, because, in the end, the financial products that were put on the books, that were bought by the Fed—you saw the profits already—we believe almost all of that will accrete back to what it was supposed to be.

Cramer: That’s incredible.

Benmosche: It was a question of the markets had tanked, the way the accounting was done—which was changed, okay? But the accounting was very aggressive at that point in time, and so it required too much cash to be put up on things that, ultimately, would have worked.

(click for full CNBC transcript)

We prefer to leave the ultimate takeaways from this exchange (and there are several) to our readers. But there’s one worth pointing out. AIG’s actual final cash losses on the credit protection it wrote were not why it needed a bailout. Realized losses would not have caused its collapse.

It was, instead, the cash that had to be posted as collateral for those contracts that caused the company’s distress. This is a point echoed by a new paper from Harvard Professor Hal Scott and the staff of the Committee on Capital Markets Regulation:

To be sure, after AIG’s long-term debt was downgraded by each of the three rating agencies… AIG did not have enough liquidity to meet further collateral demands. Indeed, the downgrades coupled with subsequent market movements caused AIG’s collateral posting obligations to soar to more than $32 billion over the following fifteen days, compared to only about $9 billion of cash entering the week.

A turn not marked on the roadmap

Why is all of this worth rehashing four years after the fact? Because today, the policy debate regarding OTC derivatives is taking a turn that was not on the G20’s original roadmap. That map, as articulated in 2009, called for more clearing of standard, liquid swaps; appropriate capital standards across firms; and increased regulatory transparency. ISDA fully supports ‒ and has actively driven towards ‒ these G20 goals and regulatory efforts to reduce systemic risk.

So what’s the dangerous turn in the road? It’s about efforts to fashion capital and margin requirements for OTC derivatives that can’t be cleared. There are a number of different types of these instruments, used mainly by a variety of end-users in the ordinary course of their businesses, and they total 20% or so of the overall OTC market.

Some would like to see all OTC swaps centrally cleared. Clearinghouses, however, are the new too-big-to-fail institutions. They need to be protected. They must only clear liquid, standardized products. To jam them with less liquid, less standardized products could have potentially disastrous consequences. They must be kept pristine.

Uncleared derivatives are not necesarily any more risky than cleared swaps, it is just that they do not meet the (appropriately) very high bar at the clearinghouses. They do, however, have enormous social value. Examples include inflation swaps, widely used by pension funds globally and cross currency swaps, which are vital to the funding operations of corporations and governments.

It is also worth noting that the types of unclearable OTC derivatives used in the real economy generally have nothing to do with the type of CDS that AIG wrote. (Those were also unclearable and as a result have cast a shadow on the whole category of unclearable swaps.) But the desire to avoid AIG-type situations is potentially leading to a margin framework that could quite possibly end transactions in this important sector, essentially throwing the baby out with the bathwater, and in doing so perhaps perversely increasing risk in the system.

We, like regulators, want to build a framework that ensures AIG can’t happen again. And we believe that experience provides that the best way to do this for uncleared swaps is through a robust variation margin (VM) regime – one in which transactions are valued and collateral exchanged on a daily basis. Frequent exchanges of collateral between counterparties means that large credit exposures that could become destabilizing in periods of market stress can’t build up. Had this practice been followed four years ago, we would not be talking about the AIG situation today. AIG did not, as a matter of course, post daily VM to settle liabilities with its counterparties.

Another example from 2008 draws a stark contrast. Unlike AIG, Lehman Brothers did have robust VM arrangements with its counterparties. Those VM arrangements ensured that the Lehman default did not cause any systemic contagion.

However, while VM is clearly an effective part of the regulatory framework for swaps, policymakers are considering an additional step. They are proposing to impose a different kind of margin – initial margin. This can be thought of as a buffer, a safety cushion of extra collateral over and above any monies owed between parties. The goal, again, is to reduce the chances of systemic risk from a major default.

The Initial Margin paradox

Initial margin, or IM, does help reduce systemic contagion, but it does so at the cost of making market participants more likely to default, since the posting of initial margin consumes valuable liquidity resources at banks, and importantly, creates a future contingent liquidity draw of potentially terminal proportions. This is because IM requirements increase in response to increased market volatility. This procyclical funding draw will happen in the heart of a crisis, at the worst possible time for market participants.

Regulators could undercut the very goal of systemic resiliency that we are all trying to achieve. Our recent presentation makes this clear.

Professor Scott’s paper also makes it clear that AIG’s collapse did not pose systemic threats (questioning in another way the need for IM):

…it is widely believed that…AIG was saved because of the interconnectedness of its derivative positions with other important financial institutions. While it is relatively clear that derivatives helped to bring down AIG, there is no substantial evidence that its failure would have put its counterparties at risk of insolvency. Direct losses from in-the-money CDS positions held by counterparties would have been small relative to their capital.

In addition to these concerns, The IM proposals also can have significant adverse economic and financial consequences. As noted above, they could possibly put an end to the uncleared swaps market. Some commentators might welcome this, but such a position is quite frankly, absurd. Unclearable swaps are critical to the proper functioning of vital sectors of the economy, such as the US housing market and financing of corporations. They are an essential component of the lifeblood of the broader global economy.

We need to get this part of financial regulatory reform right. And to do so, we need to look back so we can move forward.

It’s what you didn’t say….

A number of stories last week – like this one – chronicled the fact that regulations stemming from Dodd-Frank on the OTC derivatives markets have begun to take effect.

These stories quite frankly come as a bit of surprise.  But it’s not because of what they say.  It’s because of what they don’t say.

Let us explain.

Over the past two years we have seen and heard countless times statements along these lines:

“Representative Barney Frank, who was the co-author of the Dodd-Frank Act, says the law will help prevent a repeat of the financial crisis.”  (New York Times)

“The Dodd-Frank financial reform overhaul last year aimed to curb the excessive Wall Street risk-taking that nearly leveled the financial system.”  (Reuters)

These statements reflect that financial regulatory reform globally, and Dodd-Frank in the US, was intended to be fundamentally about reducing systemic risk: making the financial system safer and more robust, ensuring financial institutions took risk and capitalized against it appropriately and ending bailouts of too-big-to fail institutions.

In the OTC derivatives markets, this mostly meant increasing the use of central clearing, ensuring appropriate margins for uncleared swaps and improving regulatory transparency.

Significant progress has been made in all of these areas.  More than half of the interest rates swaps market is now cleared. Regulators have transparency into market-wide and individual firm risk exposures. The vast majority of OTC derivatives positions are collateralized.

This has all been done in advance of the imposition of the new rules. As a result, the system is much safer and stronger than two or three years ago. Further progress is on the way, and it will be safer and stronger still.

Most of this remains unsaid. Much of the focus last week was instead on non-systemic issues that are not central to the fundamental goals of regulatory reform.

Post hoc, ergo propter hoc

After this, therefore because of this.  

Students of Latin (and devotees of the The West Wing TV show) know that the phrase above describes a common logical fallacy. One thing does not (and can not be said to) cause another simply because it came first.

The current debate over rising commodity prices brings this thought to mind.

As several recent articles have noted (including these from The Independent and the Financial Times), there has in recent years been an increased flow of investment funds into commodities. Commodity prices have experienced volatility and price changes during this time.

This has raised concerns that the “financialization” of and increased financial speculation in these markets are adversely impacting them. One thing (increased investment) leads to the other (higher prices), at least in the minds of some.

Given its importance, there have in recent years been a number of research studies conducted by leading academics and government institutions into this issue. What does the research show?

As Professor Craig Pirrong of The University of Houston has written, “As yet there is no serious theory, and certainly no serious evidence that speculators have distorted commodity prices.” In addition, a US CFTC Commissioner — Michael Dunn — stated in 2011, “To date, CFTC staff has been unable to find any reliable economic analysis to support either the contention that excessive speculation is affecting the markets we regulate or that position limits will prevent excessive speculation.”

In fact, there is today abundant evidence that supports the view that speculation makes little, if any, difference to food prices and price volatility:

Criticism of “speculation” and “financialization” might be timely and trendy, but it’s important to base policy decisions on the facts.  As ISDA has written:

“Although speculation is often blamed for causing problems in markets, the economic evidence shows that it is in fact a necessary activity that makes markets more liquid and efficient, which in turn benefits hedgers, investors, and other market participants.  Speculation increases market liquidity by reducing bid-offer spreads, by making it possible to transact more quickly at a given size, and by making markets more resilient.  Speculators make markets more efficient by helping move prices closer to fundamental values: short sellers, for example, provide discipline against overpricing while speculative buyers counteract unjustified drops in price.  Without speculation, markets would be less complete in that there would be fewer opportunities for other market participants, especially hedgers, wishing to manage the risks they encounter in their financial activities.”

The potential adverse impact is echoed in the academic literature. An EDHEC-Risk Institute paper notes that “proposals to restrict speculation fall somewhere in the continuum of being a placebo to actually being harmful to the goals to which they aspire.”

In addition, the Irwin-Sanders paper states:  “the policy implication of the available evidence on the market impact of commodity index funds is straightforward: current regulatory proposals to limit speculation — especially on the part of index funds — are not justified and likely will do more harm than good…. The net result is that moves to tighten regulations on index funds are likely to make commodity futures markets less efficient mechanisms for transferring risk from parties who don’t want to bear it to those that do, creating added costs that ultimately are passed back to producers in the form of lower prices and to consumers as higher prices.”

All of this brings to mind another Latin phrase that’s worth keeping in mind the next time someone tries to sell you a story about the financialization of commodities markets:
Caveat emptor.

ET Phone Home

ET Phone Home…There have been many jokes, quips and witticisms about the unfortunately named extraterritoriality (ET) issues related to OTC derivatives rules in the US.

Some have even been funny.

But not everyone is smiling about ET, as this story by Dow Jones/The Wall Street Journal points out:

“European Union and U.K. regulators urged the U.S. to delay new rules for swaps contracts and reconsider how they apply to foreign banks and transactions.  The complaints add to a chorus of concerns, including from Japanese, French and Swiss regulators, that the U.S. is overstepping its jurisdiction.”

What, exactly, is the beef?

According to a letter from the European Commission that’s quoted in the article, the US rules could “lead to duplication of laws and to potentially irreconcilable conflicts of laws for market operators.”

This is a theme we have sounded before.  It’s also one that policymakers from Asia are voicing.  Earlier this week, five regulators from three Asia-Pacific jurisdictions (Hong Kong, Singapore and Australia) jointly signed a letter to the CFTC voicing their concerns.  As their letter states:

“…we are concerned that some of the proposed requirements as they currently stand may have significant effects on financial markets and institutions outside of the US. We believe a failure to address these concerns could have unintended consequences, including increasing market fragmentation and, potentially, systemic risk in these markets, as well as unduly increasing the compliance burden on industry and regulators.”

Is there a solution in sight?

Perhaps.  As Hong Kong’s Secretary for Finance Services and The Treasury separately wrote to US policymakers:

“…we call for greater coordination internationally on implementation of OTC regulations, particularly those with cross-border implications.  We hope the CFTC, SEC and the US Treasury will defer the application of the US rules and regulations over non-US persons and work with the international community on a coordinated framework on regulatory cooperation in cross-border OTC transactions.  We also hope the US authorities would provide greater clarity to the Proposed Guidance and to recognize the OTC derivatives regulatory regimes of overseas jurisdictions on the basis of international standard.”

The lines are open.  Regulators are standing by.

Not So Fast, Let’s Stop and Think

Today’s New York Times contains an interesting story — “Strong and Fast Markets, But No Time to Think” — that reflects on the trading glitches that roiled equities markets on Wednesday.

The article discusses the evolution in securities trading over the past quarter century. It states that this change has largely been positive, but also points out potential pitfalls.

Chief among them: “…the improved markets also are more prone to disaster.” Why? Partly because “Market makers have been largely replaced by high-frequency traders who use computers that can react to orders in nanoseconds.”

As evidenced by yesterday’s problems, or those related to the “flash crash” in May 2010, no trading system is perfect.

There is an interesting parallel here to the OTC derivatives markets. Current policy proposals might significantly change their structure and the role that market makers play in them. These proposals could transform OTC derivatives from an institutional market with low trading volumes and large notional amounts per trade to a quasi-retail market with vastly higher trading volumes and small notional amounts per trade.

We’re not sure what purpose this would serve. Given the price competition and the extremely tight spreads in the most liquid part of the OTC derivatives markets, the impact on trading costs would appear to be minimal.

It is true that smaller end-users might benefit from lower costs, but any benefit here is likely to be more than offset by the higher costs that larger end-users might incur.

Simply stated, there is very little evidence to support the idea that the proposed changes in the structure of OTC derivatives trading would benefit market participants.

As a result, we do not think these market structure changes were the intent of the G-20 Communique issued in Pittsburgh in 2009 that formed the basis of the legislative proposals that have since advanced in key jurisdictions.

To the contrary, we believe that the overriding goal of post-crisis public policy initiatives is to build a stronger financial system and reduce systemic risk.

Efforts to increase central clearing of trades and to improve regulatory transparency do just that, which is why we and market participants are on board with and helping to drive progress in these areas.

Efforts to change how one market works should clearly be backed up by substantial evidence that those changes will bring improvement. For OTC derivatives, that evidence has been a slow train coming.