Course Code: 722

Duration: 1 day

Level: Intermediate

Fee: $795.00

Instructor: Charlotte Scott

CPE Credits: 7

Prerequisite: Understanding of OTC Derivatives and Securities Lending.

For both OTC Derivatives trading and the Securities Lending business units, Collateral Management is the cornerstone of Counterparty Credit Risk Management. Recent market events and trends highlight the importance of the effective use of collateral as a credit risk management tool. This one-day course provides a detailed look at the Middle Office and Operations functions involved in Collateral Management.

Its usage in both OTC Derivatives and Securities Lending transactions will be described.  Critical terminology and documentation of collateral agreements will be explored.  Participants will gain perspective on the historical evolution of this practice from its beginning, its place in the international financial markets today, as well as regulatory considerations, both for the U.S. markets and abroad. 

The role of institutions, investment managers, bank broker/dealers, custodians, prime brokers and industry organizations such as clearing houses and centralized securities depositories will be examined.

The program will also provide insight into the "Lessons Learned" from the recent global financial crisis, and trends in Collateral Management in the post-Lehman, post-Dodd Frank era. 

Topics for discussion include:

Collateral Management Overview

• Purpose of collateral and its requirements in  OTC Derivatives and Securities Lending  transactions
• Who are the parties involved in managing collateral?
• Relevancy for the Dealers, Institutions, hedge Funds, Custodians and Prime Brokers

Collateral Eligibility

• What types of collateral are used by dealers and asset managers and why are certain types used by market participants?

Documentation

• What agreements are used for managing collateral?
• Credit support documents
• Best practices, standards and bespoke conditions 
• Enforceability of agreements 
• Transfer of Title
• Rehypothecation

Pricing and Hedging Counterparty Risk

Collateral Terminology

• Collateral requirement
• Independent amounts (initial margin)
• Variation margin
• Haircuts (valuation percentage)
• Threshold amounts
• Minimum transfer amounts (MTA's)
• Rounding
• Interest on collateral
• Tri-Party Agreements

Collateral Workflow: A Day in the Life of the Collateral Management Department

• Position Tracking and Timing
• Mark to Market of open positions subject to collateral agreements
• Daily monitoring of collateral positions
• Margin calculations
• Margin call notice
• Removing excess collateral and adding collateral
• How collateral movements are settled and where
• Reconciliation procedures
• Non delivery
• Default
• Escalation processes

Dispute Resolution

• Why disputes arise
• How to avoid disputes
• How to resolve disputes

Collateral Management - Issues and Trends