Collateral Management

CHAPTER 47OTC Derivatives and Collateral – Regulatory Change and the Future of Collateral – Centrally Cleared Trades

This chapter provides a description of central clearing of OTC derivative trades, possibly the most significant of the many regulatory reforms introduced as a result of the 2008 Global Financial Crisis; the introduction of mandatory central clearing has an extremely important impact on the post-trade processing of OTC derivatives, and the management of exposures and collateral in particular.

Please note: many aspects of the regulatory reforms are extremely technical in nature, consequently the descriptions of the regulatory concepts and related practices are intended to be suitable for an operations readership.

Further note: the chapter which follows this chapter describes non-centrally cleared trades.

Recommendation: for those readers that have little or no prior awareness of OTC derivatives or their associated trade processing or collateral processing, it is strongly recommended that prior to reading Chapters 46, 47 and 48, they firstly familiarise themselves with Part 4a ‘OTC Derivatives and Collateral’ which is covered by Chapters 14–45, as those chapters provide a solid foundation of understanding enabling readers to relate to the regulatory changes.

DISCLAIMER

The EMIR regulations relating to OTC derivatives cover a significant amount of text and may be regarded as challenging to follow. Aligned with the author’s aim for the entire book, ...