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elearning > Collateral management

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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.

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Course Summary

Collateral menuCollateral explainedCollateral margin calls

Collateral valuationsCollateral movementsCollateral workflow

  • 60 minutes
  • 10 question multiple choice test
  • 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

Collateral management - the details

1. Why collateral is important

  • Managing credit risk
  • Over-the-counter derivatives
  • Mark-to-market values and exposures
  • Why collateral management has grown

2. How collateral works

  • Importance of documentation (credit support document)
  • Daily valuations and a regular process
  • Collateral calls and returns
  • Why credit exposures are reduced 

3. Cross product collateral management

  • What products are included
  • Why it’s advantageous
  • The drawbacks
  • Types of collateral
  • Why cash is commonly used
  • Interest payments on collateral

4. Collateral in action

  • Trade reconciliation
  • Portfolio & collateral valuation
  • Calculating the call amount
  • Revaluation
  • Trade flow 

5. Collateral terminology

  • Practical explanation and examples
  • Dispute resolution
  • Independent amounts
  • Minimum transfer amount
  • Documentation and netting
  • Threshold amount
  • Valuation percentage

6. Summary

7. Test

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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.

Registration RequiredMitigate your collateral risk 53% relevant

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.