How can firms make more effective use of collateral and make fewer demands on other capital within the firm?
As credit management has become a major concern in today’s market, it is extremely important for firms to continually assess their liquidity and exposure to counterparties. One of the best ways to proactively manage these risks is through a collateral management system.
Collateral management involves the effective handling of legal agreements, collateral valuations, and operational workflows so that firms can be sure that their positions and counterparty exposure calculations are accurate.
New OTC derivatives regulations will require the more effective management of collateral
In order to improve transparency and reduce counterparty risk, Dodd Frank and other regulations mandate that standardized OTC derivatives be traded on an exchange or regulated trading platform, cleared through central counterparties (CCPs) and reported to a trade repository. With trades dispersed across multiple clearing venues, the ability of firms to “net out” with counterparties is diminished. Furthermore CCPs typically have a more restricted list of assets that they are willing to accept as collateral – a particular challenge when traditional AAA assets are downgraded.
Make more effective use of collateral in OTC trading
Our collateral management system functionality supports both cleared and un-cleared OTC derivative trades. It provides real-time information across credit support annexes (CSAs) terms for bi-lateral counterparties and central counterparties (CCPs) and counterparty netting agreements.
Using our system, firms can quickly decide on the most efficient use of collateral, and trade with counterparties who offer the most favorable CSA terms for the assets they are willing to accept as collateral. Furthermore with full visibility of CSA terms, firms can put in place contingencies to post additional collateral in the event of a downgrade to the assets they are holding.
Analysts Laud OpenLink's Enterprise Collateral Management Solution.
Chartis Research and Woodbine Associates Cite OpenLink's Comprehensiveness
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WHITE PAPER: Heeding the Call for New Collateral Management
As the overhaul of derivatives markets forges ahead, financial institutions are facing data, valuation and risk mitigation challenges as they adjust to the new rules of collateral management.
For more information about our Collateral Management solutions please contact us today