Collateral, Netting and Systemic Risk in the OTC Derivatives Market

Collateral, Netting and Systemic Risk in the OTC Derivatives Market
Author: Mr.Manmohan Singh
Publisher: International Monetary Fund
Total Pages: 17
Release: 2010-04-01
Genre: Business & Economics
ISBN: 1451982763

To mitigate systemic risk, some regulators have advocated the greater use of centralized counterparties (CCPs) to clear Over-The-Counter (OTC) derivatives trades. Regulators should be cognizant that large banks active in the OTC derivatives market do not hold collateral against all the positions in their trading book and the paper proves an estimate of this under-collateralization. Whatever collateral is held by banks is allowed to be rehypothecated (or re-used) to others. Since CCPs would require all positions to have collateral against them, off-loading a significant portion of OTC derivatives transactions to central counterparties (CCPs) would require large increases in posted collateral, possibly requiring large banks to raise more capital. These costs suggest that most large banks will be reluctant to offload their positions to CCPs, and the paper proposes an appropriate capital levy on remaining positions to encourage the transition.

Dark Markets

Dark Markets
Author: Darrell Duffie
Publisher: Princeton University Press
Total Pages: 115
Release: 2012-01-08
Genre: Business & Economics
ISBN: 0691138966

This book offers a concise introduction to OTC markets by explaining key conceptual issues and modeling techniques, and by providing readers with a foundation for more advanced subjects in this field.

Discriminatory Pricing of Over-the-Counter Derivatives

Discriminatory Pricing of Over-the-Counter Derivatives
Author: Hau Harald
Publisher: International Monetary Fund
Total Pages: 45
Release: 2019-05-07
Genre: Business & Economics
ISBN: 1498303773

New regulatory data reveal extensive price discrimination against non-financial clients in the FX derivatives market. The client at the 90th percentile pays an effective spread of 0.5%, while the bottom quarter incur transaction costs of less than 0.02%. Consistent with models of search frictions in over-the-counter markets, dealers charge higher spreads to less sophisticated clients. However, price discrimination is eliminated when clients trade through multi-dealer request-for-quote platforms. We also document that dealers extract rents from captive clients and market opacity, but only for contracts negotiated bilaterally with unsophisticated clients.

Collateral Management

Collateral Management
Author: Michael Simmons
Publisher: John Wiley & Sons
Total Pages: 839
Release: 2019-02-18
Genre: Business & Economics
ISBN: 1119377129

Insight into collateral management and its increasing relevance in modern banking In the wake of recent financial crises, firms of all sizes have adjusted their policies to incorporate more frequent instances of collateral management. Collateral Management: A Guide to Mitigating Counterparty Risk explains the connection between the need for collateral management in order to alleviate counterparty risk and the actions that firms must take to achieve it. Targeted at middle and back office managers seeking a hands-on explanation of the specifics of collateral management, this book offers a thorough treatment of the subject and attends to details such as internal record management, daily procedures used in making and receiving collateral calls, and settlement-related issues that affect the movements of cash and securities collateral. An expert in financial topics ranging from trade lifecycle to operational risk, author Michael Simmons offers readers insight into a field that, so far, is struggling to produce enough expertise to meet its high demand. Presents hands-on advice and examples from a bestselling, internationally renowned author who introduces his third book on operations and operations-related activities Explains the relationship between collateral management and preventing institutional defaults, such as the recent Lehman Brothers downfall Since 2008, firms have recognized and embraced the importance of collateral management, but this book will provide practitioners with a deeper understanding and appreciation of its relevance.

Global Financial Stability Report, April 2010

Global Financial Stability Report, April 2010
Author: International Monetary Fund. Monetary and Capital Markets Department
Publisher: INTERNATIONAL MONETARY FUND
Total Pages: 0
Release: 2010-05-20
Genre: Business & Economics
ISBN: 9781589069169

Risks to global financial stability have eased as the economic recovery has gained steam. But policies are needed to reduce sovereign vulnerabilities, ensure a smooth deleveraging process, and complete the regulatory agenda. The April 2010 Global Financial Stability Report examines systemic risk and the redesign of financial regulation; the role of central counterparties in making over-the-counter derivatives safer; and the effects of the expansion of global liquidity on receiving economies.

Over-the-counter Derivatives

Over-the-counter Derivatives
Author: United States. Congress. Senate. Committee on Banking, Housing, and Urban Affairs. Subcommittee on Securities, Insurance, and Investment
Publisher:
Total Pages: 196
Release: 2010
Genre: Business & Economics
ISBN:

Counterparty Credit Risk, Collateral and Funding

Counterparty Credit Risk, Collateral and Funding
Author: Damiano Brigo
Publisher: John Wiley & Sons
Total Pages: 464
Release: 2013-03-05
Genre: Business & Economics
ISBN: 047066178X

The book’s content is focused on rigorous and advanced quantitative methods for the pricing and hedging of counterparty credit and funding risk. The new general theory that is required for this methodology is developed from scratch, leading to a consistent and comprehensive framework for counterparty credit and funding risk, inclusive of collateral, netting rules, possible debit valuation adjustments, re-hypothecation and closeout rules. The book however also looks at quite practical problems, linking particular models to particular ‘concrete’ financial situations across asset classes, including interest rates, FX, commodities, equity, credit itself, and the emerging asset class of longevity. The authors also aim to help quantitative analysts, traders, and anyone else needing to frame and price counterparty credit and funding risk, to develop a ‘feel’ for applying sophisticated mathematics and stochastic calculus to solve practical problems. The main models are illustrated from theoretical formulation to final implementation with calibration to market data, always keeping in mind the concrete questions being dealt with. The authors stress that each model is suited to different situations and products, pointing out that there does not exist a single model which is uniformly better than all the others, although the problems originated by counterparty credit and funding risk point in the direction of global valuation. Finally, proposals for restructuring counterparty credit risk, ranging from contingent credit default swaps to margin lending, are considered.