Collateral Management

CHAPTER 31OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Portfolio Reconciliation

The ‘Throughout Lifetime of Trade’ section of the OTC Derivative Collateral Lifecycle covers multiple activities that, in most cases, should be performed repeatedly by a firm following trade execution and post-trading activities, and throughout the trade’s entire lifetime (unless the contract ceases to exist prior to its scheduled maturity date due to a post-trade execution event).

This chapter explains the essential step of ensuring that a firm’s view of the OTC derivative trades that are subject to collateralisation with a particular counterparty, are agreed by that counterparty, prior to the calculation of exposures.

31.1 INTRODUCTION

At this point in the collateral lifecycle, a firm is likely to have multiple OTC derivative trades that are open with many of its counterparties.

At this early stage in the collateral lifecycle, the firm is at risk of calculating exposures on (for example) an incorrect population of underlying trades, or on out-of-date trade details. If a control is not utilised, exposure differences with the firm’s various counterparties remain a distinct possibility and are not likely to come to light until later in the day when deadlines may be approaching. Any such discrepancies will cause valuable time to be lost whilst ...