Collateral Management

CHAPTER 46OTC Derivatives and Collateral – Regulatory Change and the Future of Collateral – Introduction

Part 4a of this book describes:

• the essential nature of OTC derivative products
• the legal documentation which provides protection for both parties when trades are executed
• how exposures arise following trading
• the sequential steps in the collateral lifecycle designed to mitigate exposures, and
• post-trade execution events which can cause significant impacts on collateral processing.

In summary, Part 4a focuses on trading and collateral management activities which have been executed directly between two parties, on a bilateral basis.

Part 4b refers to the set of ISDA legal documentation used for bilateral trading and collateral management of OTC derivative trades executed directly between two trading parties.

This Part of the book (4c) describes the far-reaching regulatory reforms introduced as a result of the 2008 Global Financial Crisis, which have very significant implications on the post-trade processing of OTC derivatives, and the management of exposures and collateral in particular.

This chapter provides an introduction and overview of such regulatory reforms, and the following two chapters describe at a more granular level what is involved both structurally in the marketplace, as well as how collateral management is impacted.

Recommendation: for those readers that have little or no prior awareness of OTC derivatives or their associated trade processing ...