November 2012

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Central Counterparties (CCPs) have become increasingly public actors in the global marketplace as new financial regulations, including Basel III, Dodd-Frank and EMIR, reinforce their role as risk managers. These changes put a spotlight on how CCPs approach collateral management, which is a central mechanism for mitigating risk in financial markets.

CCPs control at least US$400 billion in collateral assets, according to data collected from the most recent CCP annual reports. Upcoming changes however suggest that the amount of collateral they hold will rise from anywhere between US$100 billion to US$2 trillion, depending on the amount of OTC derivatives that move onto CCP platforms. This potentially dramatic increase of collateral on CCPs means that investors, banks and clearing members should understand the policies, procedures, and the risk models that CCPs use to run their businesses.

This report looks at the challenging world of CCP collateral management from the perspective of CCPs themselves. We conducted detailed interviews with major CCPs worldwide including several in emerging markets to hear how they view the role of collateral for both risk management and as a potential competitive lever in the marketplace. The report also looks at how CCP goals are being achieved from an operations and technology standpoint. As CCPs work to evaluate their new responsibilities in the post-Lehman era, this report serves as a benchmark guide for understanding CCP rules, roles and rationale for decision-making in the collateral management space.

This report should be read by banks, regulators, asset managers and other investors that use or are impacted by the collateral policies of CCPs.

This report is 35 pages with 9 exhibits.

This report is available at no charge courtesy of Calypso.


■ Executive Summary

■ CCPs in the Spotlight
– Who Owns CCPs
– The Core Functions of a CCP

■ Collateral Management as Risk Management
– Collateral Acceptance
– Cash Might Not Be King, But It Is Still Important
– Using Tri-Party Custodians
– Risk Models, Curves and Present Value
– Omnibus Accounts vs. LSOC vs. Full Segregation

■ Collateral Management as a Competitive Edge
– Is Cross-Netting Valuable or Dangerous?
– Central Bank Backstops

■ CCPs in Emerging Markets
– Pushing Back on Basel III

■ The Role of Technology

■ CCP Expectations of the Future Landscape

■ About the Author

■ About Finadium


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