March 2016

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This Executive Briefing report presents the main options and opportunities facing asset holders in cash and non-cash collateral markets today. In cash, this includes regulatory change in the US prime money fund market and the realism of investing in government money funds. We also investigate the potential benefits and disadvantages of creating a separately managed cash portfolio that includes a portion of equity- backed or other repo, and/or terms that benefit dealer balance sheets. In non-cash, we evaluate collateralization levels in the face of market volatility.

For both cash and non-cash, the question of collateral is the same: would an asset holder be happy with owning a portfolio in case of a counterparty default? There is no one right answer; rather, we offer the alternatives to facilitate asset holder decision-making. While the emphasis of this report is on the securities lending market, the same principals apply to Initial Margin in OTC derivatives.

This report should be read by asset holders in securities lending, repo and OTC derivatives, as well as their advisors and service providers.

This report is part of the Finadium Executive Briefing series, providing briefings and analysis to the financial markets industry.

This report is 23 pages with 8 exhibits.

■ Executive Summary

■ The Major Change to the Collateral Landscape

■ Cash Collateral in Securities Lending

■ Non-Cash Collateral

■ Important Decisions for Asset Holders
– Can Securities Lending Collateral Be Used for OTC Derivatives?

■ About the Author

■ About Finadium


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