Finding and managing the collateral needed to mitigate derivatives exposures is necessitating new technologies and outsourcing models, finds Dan Barnes.
There has been a marked increase in the number of firms that
are used to manage a trade. Prior to the 2010 Dodd-Frank Act
and European Market Infrastructure Regulation, which is
expected to enter force at the beginning of 2014, trading OTC
was typically a bilateral arrangement that left firms
vulnerable, particularly if they had used one broker for many
services, including collateral management.
"There are still people trying to get their collateral back
from the Lehman collapse," observes Bob Holland, senior product
manager, Fixed Income and Derivatives, for workflow technology
"US clients thinking they had posted collateral with Lehman
Brothers New York found it was with Lehman Brothers London
where there weren't the same segregation rules. There were
lessons learned, especially for those in the hedge fund
community who had Lehman as a prime broker. They did all of
their deals in New York, but the New York guys did deals in
London and so that was where the collateral ended up."
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