Finadium: What the Buy-side Should Know About Netting

A new report from Finadium looks at what netting rules are most important for the buy-side, including hedge funds, asset managers and institutional investors, as they work to best position themselves with bank and broker counterparties.

Investors can benefit financially by increasing their understanding of netting rules across repo, securities lending and OTC derivatives. Clearly netting matters: in Europe, netting agreements are defining the very viability of some counterparty interactions, while in the US, non- nettable transactions see sharply increased costs. The challenge for investors is knowing what the actual rules are and how their netting agreements and portfolios match up to bank and broker netting requirements.

This report looks at netting, using repo, securities lending and OTC derivatives as examples, and what investors should know in order to best position themselves with their bank and broker counterparties. The report reviews current rules, including the value of netting to repo dealers in particular, and the important differences between IFRS, GAAP and the economic value of netting. The report then turns to buy-side specific issues that are emerging in importance. For example, when does it make sense for the buy-side to use CCPs to help their dealers net positions. And how much will netting matter anyways as new Basel III, Dodd-Frank and EMIR regulations come into effect?
This report is part of the Finadium for Investors series, providing briefings and analysis to the asset owner and asset manager community.

Finadium subscribers with logins can log in to access this report.

For non-subscribers, more information on this report and subscription information is available on the Finadium reports home page.

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