Why collateral?
- CCPs, bilateral portfolios, central banks; increasing requirements to collateralise: Dodd Frank and EMIR
- Counterparty risk reduction, liquidity impact
Collateralisation process
- The CSA (Credit Support Annex to ISDA master agreement)
- Valuing the portfolio to be collateralised
- Definition with each CP of the schedule of acceptable collateral
- Cash and near-cash: currencies
- Bonds: issued by governments, government agencies, supra-nationals, corporates
- Other debt claims, precious metals, securitised obligations
- Repos and securities lending
- Baskets of deliverable securities; GC and specials
- Correlation concepts
- Where to find collateral; who holds it, who needs it?
- Haircuts: how is the level set? Interest rate instruments, currencies
- Valuing collateral
- Margin call thresholds
- Mark-to-market frequency
Case study:
- Prepare a collateral account system for bilateral OTC derivatives portfolio
- OTC derivatives cleared at a CCP: as member; as customer of member
Collateral management systems
- Securities depositaries: EuroClear, Cedel, CACEIS, US custodian banks
- Tri-party collateral management; principles and drivers
- Collateral management system (CMS)
- ESES in France, Belgium, Netherlands with their respective central banks
- LCH.Clearnet
- Collateral Basket With Pledge (CBWP)
- Delivery against Payment mechanism
- The role of the bank acting as Clearing Broker in collateral transformation
Case study:
- Constitution of a collateral account (following the previous case study) management of collateral positions throughout the life of the exposure
- Analysis: the risks to monitor in bilateral exposures:
- Last days at Lehman; dirty tricks
Optimising collateral
- Collateral management function: how and why
- Collateral quality control
- Minimisation of repo fails
- Risk measurement
- Collateral substitution; collateral swaps
- Re-hypothecation of securities accepted as collateral: principle and limitations
- Systemic risk of a collateral crunch?
Case study: Macro number changes wrought by regulation ; how they are affecting the banks and other players in the credit and interest rate markets