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Introduction to Collateral Management
Collateral Management continues to evolve and re-invent itself in response to regulatory requirements, especially for buy-side firms. As derivatives continue to be a central component to a firm’s investment strategies, firms have faced increased margin requirements as well as new, unprecedented requirements taking effect. This course will provide insight into how to manage collateral within the new regulatory environment as well as managing multiple bifurcated margin models within one operation.

Collateral has been used for hundreds of years to provide security against the possibility of payment default by the opposing party in a trade. Collateral management began in the 1980s, with Bankers Trust and Salomon Brothers taking collateral against credit exposure. There were no legal standards, and most calculations were performed manually on spreadsheets. Collateralisation of derivatives exposures became widespread in the early 1990s. Standardisation began in 1994 via the first ISDA documentation.[1]

In the modern banking industry collateral is mostly used in over the counter (OTC) trades. However, collateral management has evolved rapidly in the last 15–20 years with increasing use of new technologies, competitive pressures in the institutional finance industry, and heightened counterparty risk from the wide use of derivatives, securitization of asset pools, and leverage. As a result, collateral management is now a very complex process with interrelated functions involving multiple parties.

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