Collateral Management

Background

OTC Derivatives, Repos and Securities Lending and Borrowing are now recognised as very sensitive areas inside many Securities Operations departments, whether on the Buy or Sell sides.

As the demise of Lehman Brothers showed, besides a number of unpublicised hiccups, Collateral Management within these activities is a critical function in mitigating counterparty risk and in ensuring exposures are covered by the proper taking/giving of collateral.

This course looks at Collateral Management in OTC Derivatives in particular as well as Repos and Securities Lending and Borrowing. Risk identification, control, documentation, types of collateral, gross and net exposure and other practical aspects are covered as well as the conceptual framework and practical problems eg the treatment of corporate actions on a borrowed/lent position.

A basic knowledge of and work experience in the Securities Industry is assumed as well as an awareness of Securities Lending or Repos. Specific knowledge of Securities Lending and Repos is not assumed.

Content

• what is collateral & the purpose it serves
• the various transaction types requiring collateral
• what causes exposure for financial institutions
• the different types of collateral & their characteristics
• reasons for legal protection & associated documentation
• the importance of proper agreement and record keeping.
• the collateral lifecycle
• components in collateral call calculation
• procedures for making & receiving collateral calls
• procedures for handling collateral substitution & income payments
• market-wide collateral management terminology
• primary risks and mitigating controls throughout.