Definitions of Collateral and Exposure
Collateral as a concept; the basic economic impact; exposure sources: securities lending, repos, loans, OTC derivatives, exchange-traded derivatives, equities settlements, FX, commodity financing, overdrafts; exposure types: counterparty, mark-to-market, potential future exposure.
Business Drivers and Risks
Improving deal terms; expanding dealing volumes; generating additional revenues; legal risk; correlation risk; market risk; concentration risk; counterparty risk; operational risk; the effect of collateral on risk.
Regulatory Capital
Regulatory guidelines; regulatory capital treatment with and without collateral; sample capital cost savings with collateral; capital adequacy calculations; current and future regulatory capital requirements.
| Exercise: Regulatory Capital |
The Legal Framework for Global Collateralisation
Choice of law issues; perfection; enforceability; law reform and regulator's requirements for collateral legal opinions; Title transfer and rehypothecation.
Setting up the Function
Organisational requirements; single operations centre; distributed processing; infrastructure priorities; staffing and productivity; systems requirements; "Buy" versus "Build" decisions; vendors; bilateral versus tri-partite; policies and procedures; agreement parameters; risk management.
Tri-Partite Collateral Management
Development of tri-party collateral; mechanics of tri-party collateral in securities lending and tri-party repos; fixed income versus equity; legal aspects; Infrastructure requirements.
| Exercise: Collateral Allocation |
Volatility, VAR Aan Margining Strategies
Volaility; VaR and VaR-span scenarios; margin bases: flat, exposure-based, value-at-risk; OTC versus exchange-traded margining; margin timing.
The ISDA Credit Support Annex
Agreement parameters; haircuts; thresholds; minimum transfer amounts; Independent amounts; rounding.
The OTC Collateral Process
Portfolio identification and reconciliation; exposure calculation; margin calls; receiving collateral; posting collateral; substitutions.
Optimisation
Locating the "Cheapest-to-Deliver"; pooling of collateral assets; collateral opportunity cost; trading the collateral market; tracking rehypothecation.
Operational Risks
The implications of different forms of collateral; operational risk techniques; process decomposition and point of failure analysis; self assessment; statistical analysis; managing operational risk.
Summary and Questions
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