introduced or proposed rules requiring clearing of over-the-counter (OTC) derivatives through central counterparties. Clearing requirements in turn affect margin requirements, which are one key mechanism used by parties to mitigate counterparty risk. Although clearing rules help shield collateral from the insolvency of the secured party, they also may substantially increase financial and operational costs for the users of cleared derivatives because of the higher margin delivery requirements applicable to such transactions. Continue reading “MARGIN COSTS OF OTC SWAP”
The ongoing crisis since 2008 have given the birth to lot of new jargon’s and terminologies in the world of financial market, I had tried to accumulate few of them from various sources and then will highlight an arbitrage strategy.
As I wrote about central clearing some catastrophic bonds like to continue the series as lot of terminologies yet to be explored in this mammoth market of OTC derivatives. I had tried to accumulate few of them from various sources:
- [h]ypothecation is when a borrower pledges collateral to secure a debt. The borrower retains ownership of the collateral but is “hypothetically” controlled by the creditor, who has a right to seize possession if the borrower defaults.