Collateral Management

CHAPTER 35OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Issuing Margin Calls

The processing steps in making a margin call are broadly similar to those covered within the previous chapter (Receiving Margin Calls). However, there are certain specific aspects that relate only to making a call; this chapter highlights those processing aspects involved in successfully making a margin call, so as to mitigate the firm’s exposure.

35.1 INTRODUCTION

By this stage in the collateral lifecycle, the following should have occurred. Note that these tasks are common to both receiving a margin call and making a margin call:

• portfolio reconciliation
• marking-to-market
• calculation of exposure amount, taking account of:
  • CSA components, per counterparty
  • existing collateral given or taken.

In fact, all the above-mentioned tasks are essential in determining the monetary value of an exposure, and which party is exposed and therefore which party should make the margin call.

Under the circumstances where the firm has established that it has an exposure, the mitigation of that exposure is achieved by the procedural steps depicted in Figure 35.1

FIGURE 35.1 Issuing a margin call: sequential tasks

35.2 ISSUING A MARGIN CALL NOTIFICATION

The firm’s ...