Article: The game changer for collateral management02 November 2016 | David White
New margin rules demand operational overhaul
Crisis always underscores the critical importance of collateral management – that was true in the LTCM (Long Term Capital Management) meltdown in 1998 and then again in the Lehman crisis in 2008 when collateral desks were crucial information vectors.
But the only real innovation in the decade after LTCM has been the introduction of the triResolve automated, web-based portfolio reconciliation service that helps with the basic building block of good collateral management. Manual, fragmented processes continue to characterize the upstream collateral management systems for OTC derivatives.
The introduction of margin rules for non-cleared OTC derivative trades beginning in September 2016 challenges the status quo. Firms trading OTC derivatives will be required to calculate and exchange collateral daily and do so with zero thresholds. Margin call volumes are set to balloon, and counterparties could see four margin calls per relationship where