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Collateral Management: Current & Future State

  • Banking Operations, Regulation
  • Duration: Two days
  • Information


    For a number of years the financial marketplace has seen rapid growth in the use of collateral, which for some time was associated with repo and securities lending transactions, but is now additionally of major importance in reducing exposure in other transactions, particularly OTC derivatives. 

    The degree of complication within operations departments has consequently multiplied greatly.  Successful processing of collateral within an organisation requires knowledgeable staff that understand the component parts that lead to safe and secure processing, and awareness of the pitfalls that can result in unacceptable exposures.

    Furthermore, the regulatory changes being introduced from January 2013 under EMIR in Europe and Dodd-Frank in the US, and in particular the introduction of central clearing for OTC derivatives will have major implications for both sell-side and buy-side firms, particularly in the area of collateral management.

    These changes will present particular challenges to buy-side firms; in order to overcome such challenges sell-side firms may offer their clients a new type of service known as collateral transformation.   Another change being introduced in parallel with the regulatory changes is the introduction of the new Standard Credit Support Annex, designed to standardise legal arrangements for collateral.


    Aims of the Course

    The Collateral Management: Current & Future State training course is designed to firstly provide a fundamental grounding in the secure and controlled processing of collateral, with a particular focus on the operations aspects.  The subject of collateral is becoming increasingly important, as firms attempt to gain maximum leverage from their assets whilst attempting to minimise risk.

    Secondly, the course is designed to express the purposes behind the regulatory changes, to explain what is central clearing and in particular the impact on collateral management, to describe what is collateral transformation and the reasons underlying collateral transformation services offered by banks to buy-side institutions, and to illustrate the issues with current Credit Support Annex arrangements and to describe the components of and the reasons for the new Standard CSA being introduced.  Furthermore, the optimal use of collateral within a firm will be discussed.



    The objectives of the course are to provide participants with: 

    • Awareness of the essential purpose of collateral
    • Appreciation of numerous collateral-related transaction types
    • Understanding of the main collateral operational flow
    • Knowledge of how to derive collateral values & what impacts such values
    • Appreciation of the primary content of legal agreements
    • Understanding the purpose behind the new regulatory changes
    • Appreciation of the implications of central clearing on collateral management
    • Awareness of collateral transformation options available to buy-side firms

    Understanding the purpose and content of the new Standard CSA

    Awareness of how a firm’s assets can be used in an optimal fashion

    Appreciation of the risks in processing collateral & the controls to mitigate

    Who Should Attend

    The course is designed to be suitable for:

    • Existing collateral management personnel who would benefit from understanding the ‘big-picture’ and who need to understand the impact of central clearing
    • Existing staff who have had limited exposure to collateral but who require a greater understanding of the relationships between their work and collateral
    • Employees who recently have been transferred to the collateral management departmentor who are interested in a transfer
    • Team leaders/management; to increase their awareness of and the risks involved in the processing of collateral, and who need to understand central clearing and associated implications
    • Those providing services to banks and other financial institutions, including management consultants, software vendors, custodians and data vendors.


    Delegates should ideally possess an understanding of the various types of security and of securities and derivatives transaction types and their processing lifecycles.  


    Each topic (see Contents below) will be expanded and explained to the delegates in a structured manner (via linked building blocks), developing their knowledge through diagrams, ‘live’ drawings and on-the-spot explanations. 

    Active participation of the delegates will be encouraged, and exercises will be introduced at frequent and appropriate points. Optionally, at the beginning of day 2, individual attendees will be required to briefly describe the concepts of topics covered during day 1 (this has proven to be an excellent method of attendees retaining knowledge).


    Day 1

    Collateral Management: Current State

    1 Fundamental Collateral Concepts Definition & Purpose of Collateral

    •   Why the Increased Focus on Collateral?
    •   Overview of Collateral Lifecycle
    •   Cash & Bond Collateral
    •   Collateral Impact on Regulatory Capital: Overview

    2 Transaction Types Necessitating Collateral  Securities Lending & Borrowing

    •   Repo
    •   Secured Cash Borrowing & Lending
    •   OTC Derivatives
    •   Cash Borrowing at CSDs and Custodians
    •   Foreign Exchange
    •   Tri-Party Collateral Services

    3 Credit Support Annex Credit Support Annex

    •   Haircut Calculation

    4 The Collateral Lifecycle


    • Legal Documentation
    • Static Data


    • Trade Execution
    • Trade Confirmation

    Throughout Lifetime of Trade

    • Trade Reconciliation
    • Marking-to-Market
    • Collateral Call Calculation
    • Collateral Calls
    • Making Collateral Calls
    • Receiving Collateral Calls
    • Cash Collateral vs Securities Collateral
    • Collateral Substitution
    • Rehypothecation
    • Income & Corporate Actions

    Trade Termination

    • Trade Termination

    Day Two
    Collateral Management: Future State

    1 Regulatory Change for OTC Derivatives

    •   Regulatory Change: Introduction
    •   Trading on Exchanges or Electronic Trading Platforms: Overview
    •   Central Clearing: Overview
    •   Capital Requirements: Overview
    •   Trade Repositories: Overview

    2 Central Clearing & its Impact on Collateral Central Clearing Concepts

    •   Clearing Member Insolvency
    •   Central Counterparty Insolvency
    •   Central Counterparty Membership Structure
    •   Central Clearing for Clearing Members
    •   Central Clearing for Non-Members
    •   Multiple Central Counterparty Implications
    •   Risk Management within Central Counterparties
    •   Collateral for Buy-Side Firms in a Central Clearing Environment
    •   Eligible Collateral in a Central Clearing Environment
    •   Rehypothecation in a Central Clearing Environment
    •   Impact of Collateral in a Central Clearing Environment
    •   Operational Implications of a Central Clearing Environment
    •   Communicating New Trades to the Central Counterparty
    •   Interoperability Between Central Counterparties
    •   Cleared versus Uncleared Trades
    •   Backloading of Legacy Trades to a Central Counterparty
    •   Legal Documentation for Central Clearing
    •   Central Counterparty Regulation & Supervision

    3 Collateral Transformation

    •   Collateral Requirements in a Central Clearing Environment
    •   Impact of IM & VM Collateral on Existing Asset Portfolios
    •   Collateral Transformation
    •   Repo
    •   Securities Lending
    •   Collateral Transformation Methods
    •   Collateral Transformation Legal Documentation
    •   Operational Implications of Collateral Transformation
    •   Collateral Transformation and Clearing Member Insolvency
    •   Collateral Transformation: Cost & Time Implications
    •   Membership Preferences in a Central Clearing Environment

    4 New Standard CSA The Existing Credit Support Annex

    •   Issues with the Existing Credit Support Annex
    •   The New Standard Credit Support Annex
    •   Trade Discount Rates: Impact on Novation
    •   Use of the New Standard Credit Support Annex
    •   SCSA Implementation Timeframe

    5 Collateral Optimisation Collateral Optimisation: Introduction

    •   Collateral Operations Restructuring
    •   Collateral Operations for Clearing Members
    •   Collateral Operations for Buy-Side Firms
    •   I.T. System Vendor Solutions for Collateral Restructuring
    •   Proactive Collateral Inventory Management  
    •   Assets Available as Collateral
    •   Collateral Requirements of Counterparties
    •   Collateral Allocation Criteria
    •   Determining Haircut Percentages

    Register interest

    As every course we run is tailored to meet the specific needs of each client, we can only provide an estimate after fully understanding your specific requirements. Please complete the form below of call +44 (0) 208 894 4977 to discuss how Taylor Associates can help you.

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