At this point in the collateral lifecycle, a firm should have 1) performed portfolio reconciliation with its various counterparties, and 2) completed the mark-to-market process.
A number of components comprise the determination of:
The first two of these points are explored within this chapter, whilst the third point will be covered within the following two chapters.
For OTC derivatives, each Credit Support Annex (CSA) that a firm has with its various counterparties is likely to contain details that, if not unique from one another, differ in many aspects. It is therefore essential that, for exposure calculation purposes, a firm ensures it utilises the exact information contained in the relevant CSA for each of its counterparties. For details comprising the CSA, please refer to Chapter 22 ‘OTC Derivatives and Collateral – Legal Protection – Credit Support Annex’. ...