If you are deployed in the Investment banking space front office, middle office or back office, you should have come across phrases such as “collateral liquidity crunch” and “collateral scarcity”, and new terms such as “collateral transformation” and the “collateral upgrade trade.
Came across an interesting paper on Collateral management sharing some of the highlights, need for collateral management, how we got there, some of the Best Practices to collateral.
The 2008 financial crisis and the role derivatives played in it compelled regulators to re-examine and reengineer the entire derivatives market structure. The disruption to the derivatives market is already underway, primarily as a consequence of behemoth regulations such as the Dodd-Frank Act (DFA), European Market Infrastructure Regulation (EMIR), Basel III and others. But new global regulations are not the only driver. Continue reading “What is Collateral Management”
They’rrrre baaack. It’s leveraged supersenior kids, but not as you know it. Specifically not as you know it because the new ones are not non-recourse on the leverage, so they have no gap risk for the seller. Now, there are some not-entirely-accurate statements going around about what is actually happening here, so let’s look.
How would you synthesize a leveraged supersenior position? Well, take the underlying CDO, and sell the junior for a fair price.
Then take the senior, put it in an SPV, and fund that vehicle by Continue reading “Derivative not toxic shock”
Recalling Felix salmon review on The lessons of “Margin Call” : I don’t believe that Wall Street is meaningfully improving the lives of the 1%, except insofar as Wall Streeters are the 1%. (Remember that financial professionals make up only 14% of the top 1%, and 18% of the top 0.1%. They’re a large chunk, but by no means the majority.)… I suspect that the top 1%, if anything, are responsible for a disproportionate share of Wall Street’s income. Wall Street isn’t picking the pockets of the 99% and giving the proceeds to the 1%: it’s picking the pockets of the 1% and giving the proceeds to itself. And Wall Street is taking a whole bunch of money from the 99%, too. But for the 86% of the top 1% who don’t work in finance, I really don’t believe for a minute that Wall Street is helping them out by giving them the hard-earned money of the 99%. Continue reading “Margin call and the Lessons:”