The Challenge of Standardizing Collateral Schedules in OTC Derivatives: A Finadium Survey
Finadium
May 2017
A push/pull situation between dealers, ISDA and the buy-side has reached a new crescendo in recent months as Basel Committee/IOSCO rules have forced a large-scale repapering of bilateral Credit Support Annexes. This repapering has been accompanied by a renewed effort by dealers to standardize collateral schedules, a move that has taken up countless hours of negotiation between dealers, buy-side firms, custodians and lawyers.
At the heart of the matter is a dealer desire for simplification versus buy-side preferences for flexibility. Dealers view the opportunity for standardization as a cost management situation, in which reduced complexity in collateral schedules can have downstream operational and business benefits internally. For the buyside, the desire for less restrictive collateral eligibility schedules connects directly to what the buy-side holds as potential collateral assets, a desire to keep additional costs out of the transaction, and a dislike of the repapering requirement to be bundled along with renegotiating eligible schedules.
This report uncovers how dealers, ISDA and the buy-side have arrived at today’s conversation on collateral standardization, the growth of CCPs in standardizing acceptable collateral and how these changes are accelerating the evolution of the collateral management function, including pricing collateral flexibility. This new survey of market participants conducted by Finadium reveals the interests, requirements and preferences of dealers, buy-side firms and vendors in solving this problem and their plans for the future.
This report should be read by dealers, buy-side firms, vendors and their advisors in OTC derivatives, repo, securities lending and collateral management across products.
This report is 27 pages with four exhibits.
TABLE OF CONTENTS
■ Executive Summary
■ The Struggle for Standardization
■ The Growth of the CSA
– Estimating the Number of CSAs
– Types and Variations
– The Basel/IOSCO Margin Rules
■ The Growth of CCP Standardization
■ Market Survey Results on Standardization Efforts and Best Practices
– Operations, Technology and Pricing
– What is Driving Standardization?
– Plans for the Immediate Future
■ Expectations for Market Solutions
– Next Steps for Collateral Management
■ About the Author
■ About Finadium