BLOOMBERG COLLATERAL MANAGEMENT - Amazon S3 COLLATERAL MANAGEMENT // AND MARGIN REQUIREMENTS FOR NON-CENTRALLY

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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

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    WHICH MEANS A BETTER UNDERSTANDING OF OUR POSITION

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    HOW MUCH TO POST

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    WHICH MEANS A BETTER UNDERSTANDING OF OUR POSITION

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    WHAT IS ELIGIBLE TO POST

    HOW MUCH TO POST

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    WHICH MEANS A BETTER UNDERSTANDING OF OUR POSITION

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    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

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    BLOOMBERG CONNECTS YOU TO DATA 12

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    BLOOMBERG CONNECTS YOU TO THE MARKET

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    BLOOMBERG CONNECTS YOU TO PRICING MODELS

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    00:30.0000:30.00

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    BLOOMBERG CONNECTS YOU TO PRICING MODELS

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    BLOOMBERG CONNECTS YOU TO YOUR DOCUMENTATION

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    BLOOMBERG CONNECTS YOU TO EACH OTHER

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    WHY IS COLLATERAL IMPORTANT FOR DERIVATIVE PRICING?

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    » 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