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Tag Archive: OTC


International Swaps and Derivatives Association is the body corporate to make over the counter (OTC) derivatives market CDSDEFAULT-1-1safe and efficient.

It has 815 members from 58 countries including global, international and regional banks, asset managers, energy and commodities firms, government and supranational entities, insurers and diversified financial institutions, corporations, law firms, exchanges, clearinghouse and other service providers.

The Key areas of ISDA are
* Reducing counterparty risk
* Increasing the Transparency
* Improve the OTC operational infrastructure.

The details are provided on the ISDA Brochure

ISDA came under criticism in 2012 on its decision that based on evidence the Greek bailout would not prompt payments on the (CDS) credit default swaps.
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Size is too simple a metric… It really doesn’t matter from a systemic point of view whether you have four banks or forty banks in a blogmarket. It’s the system’s asset concentration – principally in government debt and in mortgage debt – that can be dangerous.”

Sometimes it’s always good to keep brushing yourself, thought of sharing some important glossary on the OTC Market as I was refreshing self on last night:

  • Back loading: The action of clearing already existing bilateral OTC derivatives positions.
  • Collateral management : Typically, two parties enter into an OTC transaction under an Agreement (ISDA framework mainly) that specifies the contractual relationship between the two parties. As part of this Agreement, a specific document (Credit Support Annex/Deed under the ISDA framework) stipulates that some collateral will be exchanged between them to mitigate counterparty risk. Collateral, in the form of cash or securities, is mainly exchanged on the basis of the variation in the value of the exposure between the parties (value of all OTC contracts under the Agreement). This is often referred to as Variation Margin. In addition, Independent Amounts can be requested by one of the parties.

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OTC Derivatives Market

Size is too simple a metric… It really doesn’t matter from a systemic point of view whether you have four banks or forty banks in a market. It’s813530 the system’s asset concentration – principally in government debt and in mortgage debt – that can be dangerous.”

Thought of sharing some Important glossary on the OTC Market as I was refreshing self on last night :

The key protection which CCPs have against counterparty credit risk is their default waterfall. They take margin from clearing members and imagestheir clients, and default fund contributions from clearing members, and use these amounts as a bulwark against losses should a clearing member default.

The different levels in the default waterfall – margin, CCP equity, default fund, default fund assessment rights, and so on – are accessed in sequence, much like the tranches of a CDO. Typically the defaulter’s margin and default fund are used first, then an amount of CCP equity is at risk, then the mutual default is used, and typically more default fund can then be called from surviving members. That is, the default waterfall starts off individual, with the defaulter (or rather their estate) paying, and then becomes mutual.  Continue reading

Very recently CME shared a paper on the famous OTC derivatives and their treatment under Extraterritoriality. Due to the role of imagesunregulated over-the-counter (OTC) financial derivatives in the 2008 financial crisis which began in the U.S. but whose influence was felt globally, the G-20 agreed in its Pittsburgh meeting in 2009 that “all standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012, at the latest. OTC derivative contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements.”  Continue reading

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