Central Clearing And Collateral Management
Posted: 20 September 2011
The imposition of central clearing by regulators represents a fundamental overhaul of the OTC derivatives market. Market participants correspondingly need to re-evaluate all aspects of their derivatives activities. A key aim of the regulatory process is to improve the quality of counterparty credit risk management across the industry. Advantages claimed for the centrally cleared model include transparency, liquidity and greater resilience to systemic financial
crisis conditions. A direct effect of the rules will be a substantial increase in the amount of collateral required to sustain a given level of derivatives activity.
Collateral is a key mitigant of counterparty credit risk; central clearing fundamentally impacts how banks and other financial institutions manage counterparty credit risk in general and collateral in particular, requiring extensive changes to business and operational processes and to data and systems infrastructure. InteDelta is working with a number of broker dealers and buy-side clients to establish the process and technology requirements for collateral management capabilities to support their evolving clearing product and service strategies. In this White Paper, InteDelta assesses the impact of central clearing on collateral management practices and explores how market participants are adapting to the post Dodd Frank world.