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Tag Archive: Variation Margin


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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If you are deployed in the Investment banking space front office, middle office or back office, you should have come across blogphrases 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

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 :

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