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Collateral Workshop, (One Day)

Collateral management is recognised as an important method of credit enhancement and risk mitigation. Many firms now require trades to be collateralised. Whilst helping to reduce credit risk, collateral management exposes the firm to operational, legal, liquidity and price risks. Understanding and managing these risks is essential.

This one-day workshop is split into two. The morning is an introduction to the topic. The afternoon considers the problems that can arise and is concluded with a case study requiring the building of a collateral statement. Whether you are responsible for setting up the collateral process or whether you are involved with handling collateral this workshop will help you understand more. Using a mixture of presentation and case study material the workshop will address the following:

Why firms seek to collateralise relationships with counterparties
How collateral management works
The terminology & mechanics of the collateral market
The risks that collateral management generates and how they can be controlled
What is normal market practice
The documentation used
The role of the collateral manager

Morning Part 1

Purpose of collateral

Main advantages of collateral
Market growth
Types of collateral

Credit exposures

Current credit exposure
Potential future exposure
Default probability
Expected loss

Entering collateralised transactions

Credit mitigation techniques
Single products
Multiple products
Establishing a policy
Internal procedures
Deciding on appropriated collateral
Types of transactions covered
Revaluation methodology

Collateral terminology

Collateral requirement
Independent amounts, (initial margin)
Haircuts, (valuation percentage)
Threshold amounts
Minimum transfer amounts
Interest on collateral

Collateral workflow

Timing
Margin call notice
Non delivery
Default
Escalation processes

Afternoon Part 2

Problems & risks with collateral

Credit risk
Operational risk
Valuation of trades
Valuation of collateral

Dispute resolution

Why disputes arise
How to avoid disputes
How to resolve disputes

Documentation

Credit support documents
What is used and what you negotiate
Enforceability

Regulatory relief

What it is
The conditions that are needed
Why it is important to banks
Implications to third parties

The collateral team

Purpose
Cost versus benefits
Skills required
Operational effectiveness

Final case study

Establishing the collateral relationship
Building a collateral statement
Calling collateral

End of workshop and review

Related Documents

Quick Guides > Collateral Management

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elearning > Collateral management

Learn about the following: Why collateral management is important. How collateral management works. The advantages of cross product collateral management. The terms used in collateral management. The advantages and disadvantages of collateral management.

Treasury Consulting > Collateral management

The firm identified that counterparty credit exposures on OTC derivatives was adversely affecting the ability to trade. It was agreed that collateral management was a solution. But the firm did not want to invest in a collateral management system and have all the operational support issues.

Mitigate your collateral risk

16th October 2009

Counterparty credit exposure (CCE) is a big issue it's why you have credit limits. When you lend money the risk is clear, will you get repaid? But with over the counter derivatives (like swaps) credit exposures are harder to see but nevertheless they are real. Derivatives with positive mark-to-market values generate credit risk. Why? Because default by the counterparty puts your profit at risk. One solution is collateral management. This involves a regular trade portfolio valuation and a net exchange of margin or collateral between the two parties involved. Collateral management is a process; it mitigates your credit risk but at the same time increases your operational risks. It's too easy to focus on the credit aspect of collateral without identifying what else could go wrong. Let's have a look at ten of the main concerns. It's not an exhaustive list but it may help you identify where improvements can be made.