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BLOOMBERG
COLLATERAL
MANAGEMENT
15 // OCTOBER // 2015
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REGULATION IS DRIVING A LARGER
GLOBAL COLLATERAL REQUIREMENT
» In the days following the Financial Crises of 2008+ a significant
increase in financial regulation was proposed in a drive to
increase transparency and reduce systemic risk
• Dodd-Frank (US)
• EMIR (Europe)
» Regulators wish to decrease the effect of counterparty default,
and increase market stability by requiring parties to post more
collateral against more derivative trades and for Financial
Institutions (FIs) to hold more capital
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CENTRAL COUNTERPARTY CLEARING
REQUIRES A LOT OF COLLATERAL
IM and VM
VM
Counterparty
A
Counterparty
B
Counterparty
A
Counterparty
BCCP
IM and VM
Bilateral trade
Centrally cleared trade
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AND MARGIN REQUIREMENTS FOR NON-
CENTRALLY CLEARED DERIVATIVES ARE
ALSO IMMINENT
March 2015
BCBS: Basel Committee on Banking Supervision
IOSCO: International Organization of Securities Commissions
Mar 2017Mar 2017
Sep
2018
Sep
2018
Sep
2019
Sep
2019
Sep
2020
Sep
2020
Sep
2016
Sep
2016
Sep
2017
Sep
2017
Bilateral VM requirement on non-cleared derivatives
Bilateral IM requirement on non-cleared derivatives
All other covered entities
Sep 2016Sep 2016
> € 3tr*
> € 3tr > €
2.25tr > € 1.5tr
> €
0.75tr > € 8bn
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WHICH MEANS THERE WILL BE MANY
MORE COLLATERAL AGREEMENTS
AND MANY MORE MARGIN EVENTS
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THIS MEANS WE NEED TO DO A BETTER
JOB OF MANAGING COLLATERAL
6
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WHICH MEANS A BETTER
UNDERSTANDING OF OUR POSITION
7
HOW MUCH TO
POST
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WHICH MEANS A BETTER
UNDERSTANDING OF OUR POSITION
8
WHAT IS
ELIGIBLE TO
POST
HOW MUCH TO
POST
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WHICH MEANS A BETTER
UNDERSTANDING OF OUR POSITION
9
WHAT IS
ELIGIBLE TO
POST
HOW MUCH TO
POST
WHAT IS
AVAILABLE TO
POST
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BETTER COLLATERAL MANAGEMENT
2015 BUILD
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AND DO A BETTER JOB OF MANAGING
CONNECTIONS
11
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BLOOMBERG CONNECTS YOU TO DATA
12
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BLOOMBERG CONNECTS YOU TO THE
MARKET
13
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BLOOMBERG CONNECTS YOU TO
PRICING MODELS
14
00:30.0000:30.00
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BLOOMBERG CONNECTS YOU TO
PRICING MODELS
15
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BLOOMBERG CONNECTS YOU TO
YOUR DOCUMENTATION
16
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BLOOMBERG CONNECTS YOU TO
EACH OTHER
17
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WHY IS COLLATERAL IMPORTANT FOR
DERIVATIVE PRICING?
18
» How to price a swap:
• A - use the correct projection curve – get the floating leg
correct
• B - use the correct discount curve – get the NPV correct
» Discounting a collateralised swap is about understanding the cost
of borrowing and lending the collateral
WHICH COLLATERAL?
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BLOOMBERG COLLATERAL
MANAGEMENT PLATFORM
Collateral
Management
MTM
Calculation
IM Calculation
Margin Call
Management
Dispute
Management
Internally-
sourced
Collateral
Valuations
Optimization
Reconciliation
Inventory
Management
Legal
Agreement
Repository
Electronic Call
Messaging
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CONTACTS
>>>>>>>>>>>>>>
PHIL MCCABE
pmccabe15@bloomberg.net
+44 20 3525 9653
CHRISTINA GROTH-BISWAS (PM - LONDON)
cgrothbiswas@bloomberg.net
+44 20 3525 9611
JOE STREETER (PM - NYC)
jstreeter6@bloomberg.net
+1 212 617 7933
