collateral_management

8/10/2019 Collateral_Management

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The Integrated

Collateral

ManagementTowards a new organisational approach


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The New Collateral Management

FrameworkThe new set of regulatory reforms (Basel III

Rules, Dodd Frank and EMIR) are significantly

increasing the costs associated with collateral

management through the obligation of

pledging high-quality liquid assets.

The market is bound to undergo an evolution

that will have a direct impact on the demand for

higher and more frequent margin calls for both

cleared and un-cleared transactions.

Additionally, banks will be required to manage

much more complex liquidity requirements

especially from an operational point of view.

The new rules provide that bilateral activity

must be margined as well (calculation and initial

margin forecasting), with a consequential

remarkable boost in the demand for liquid and

high quality assets that will result in higher

collateral costs.

Finally, more rigorous Basel III capital

requirements will have the effect of draining

resources considered "eligible" for the

collateralization and, along with a ban on re-

hypothecation of collateral already used in

cleared transactions, it will have serious

operational implications.

All of the above will push bank into rethinking

the organizational role of Collateral

Management from a back-office function

(handling reconciliations, substitutions and

margin calls) to a revenue generating Collateral

Management Hub with Treasury-like

responsibilities and functions.

It is evident that the collateral managementprocess implemented in most financial

institutions does not properly tackle the

challenge of the new OTC Derivatives

regulatory landscape.

Table 1. Critical aspects of the Collateral Management and their impacts.

Criticality

Cash-only collateral

Fragmented collateral management

Inefficiencies /

Higher Costs

Wrong P&L

Measurement

Wrong Risk

Measurment

Impact

Lack of centralised recognition of collatreal

agreements and available eligible assets

Lack of collateral management processes and

tools (the activity is often manually run on Excel

spreadsheets)

Lack of scenario generation and forecasting

toolsInconsitent or even completely wrong valuation

of OTC collateralised contracts

High

Medium

Low

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The major inefficiencies are shown in Table 1.

They are the result of the substantial

inadequacy of existing systems and processes

against the complexity and importance of

collateral in today's financial environment.

The critical aspects are reflected in the lack of

efficiency and cost controls and savings, in the

correct measurement of profit/loss of

individual or of transactions portfolio, and in

the measurement of both (counterparty) credit

and liquidity risk.

The Regulatory FrameworkThe European financial institutions are

currently facing an unprecedented amount ofregulatory reforms that impact significantly

collateral management (please, see Table

2below).

The regulatory framework defines collateral as

a set of eligible liquid and high quality assets

used in collateralized transactions; key

characteristics of these assets are their low

credit and market risk. They are also expected

to be easy to value, exchange-listed, traded in

active markets, unencumbered, liquid during

times of stress and, ideally, Central Bank-

eligible such as cash and government securities

with a high credit rating.

In addition, equities and liquid corporate bonds

may be considered by using appropriate

valuation haircuts. In the current market,

demand for liquid assets is then mainly

originated by the regulatory landscape:

Basel III - LCR: it will increase the demand

for high quality assets (HQA) with

significant consequences on the amount

of collateral held. Cash, Securities eligibleto be pledged at the Central Bank, assets

with 0% risk weight according to the

Basel II standardized model, securities

traded in highly liquid repo markets;

Mandatory Clearing: the amount of

collateral to pledge depends exclusively

on the requirements of the CCP. The

need for further securities readily

TODAY NEXT YEAR

Non-cleared OTC Derivative Transactions:

Collateral is posted in cash or eligible assets,

according to CSA agreement; Initial Margin

(optional) is an independent amount.

Non-cleared OTC Derivative Transactions:

From January 2015, Initial Margin is mandatory.

The regulation will affect gradually different types

of contracts, starting with interest rate swaps.

Collateral will be posted in cash and/or liquid, high

quality eligible assets.

Cleared OTC Derivative Transactions:

Initial and Variation Margins daily posted.

Additional margins can be requested by the Clearing

House to match contingent liquidity needs.

Cleared OTC Derivative Transactions:

Central Clearing mandatory for standardised OTC

derivatives (EMIR/Dodd Frank regulation) will make

more complex the management of intraday margin

call.

Basel II:

Collateral agreements reduce the exposure to

counterparty credit risk.

LCR Basel III:

Collateral demand will increase. The numerator of

the LCR index is the High Quality Liquid Assets

stock. Banks must hold a stock large enough to

cover the cash outflows in a stressed scenario

(defined by the Regulator) over a period of 30 days.

Table 2. Evolution of the regulation on the collateralisation of OTC derivative contracts.

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convertible into cash will drain the

resources available to comply with other

regulatory requirements;

Bilateral transactions: the regulation will

increase demand of high-quality liquid

collateral by financial institution as theywill need to meet bilateral margin calls

higher than those required by CCPs and,

possibly, not equivalent to the

counterparty risk of such transactions.

Collateral Users:

Borrowers vs

Lenders

Alongside the Sell-Side, the main actors in the

new regulation-shaped financial environment,

with regard to the management of collateral,

are the Central Banks ( Borrowers) , Custodians(e.g.: Euroclear, Clearstream, etc. . as Lenders ),

the issuer of Sovereign Debt ( high credit

quality, but not necessarily as Lenders) and the

Buy-Side (both Lenders and Borrowers).

They specifically act as follows:

1. Role of Central Banks: Central Banks in

recent years were active in purchasing high

grade Euro denominated Sovereign Debt as

part of their strategy for managing theirreserves. Such behaviour has translated into

a remarkable increase of eligible securities in

their balance sheets with a corresponding

release of liquidity into the system

(Quantitative Easing Policy). Such policy has

contributed to a concentration of the best

and the most liquid securities with the

Central Banks;

2. Custodians: about 14 trillion of collateral at

banks are held by custodians. Euroclear and

Clearstream are the largest collateral hubs

within the Eurozone. Euroclear and

Clearstream are currently collaborating with

Central Securities Depositories (CSD) to

provide a joint technical platform for the

simultaneous settlement of securities

transactions. This project, which has been

named TS2, will allow:

to settle all securities transactions within

the European markets using a single

settlement account, with clear benefits in

terms of liquidity management;

to significantly reduce the settlement

cost of cross-border transactions that is

currently far superior compared to other

markets, particularly in the U.S. - and

align it to domestic transactions;

to harmonize business practices andstandardize settlement processes,

thereby stimulating competition among

CSDs - and between them and the big

international banks - for the provision of

higher value-added services.

Within this project, the European CSDs will

entrust the technical management of a part

of the functions that they currently operate

internally to TS2. As a consequence, there

should be less constraints on the collateral.A preliminary estimate suggests that

perhaps as much as 1 - 1.5 trillion of

collateral AAA / AA quality can be released

in the medium term through this new hub.

3. Issuers of Sovereign Debt: Countries rated

AAA/AA with a GDP of about 25 trillion USD

and a budget deficit of about 4 to 5 % of

GDP, have an ability to issue highly eligible

securities up to 1 trillion USD.

Towards an Integrated CollateralManagementThe evolution of collateral management from a

legal and operational process, has required

financial institutions, mainly banks, to raise

their awareness of the need for an Integrated

Collateral Management(ICM).

The areas that are involved in the process of

designing and implementing an ICM process are

essentially: IT Infrastructure, Risk Management

Analytics, and Organisation.

In Table 3 we summarize the main problems for

each of the areas.

The technological infrastructure must be able

to directly connect to the CCPs (or to Clearing

Brokers in case of indirect clearing), and,

possibly, with any counterparties subject to a

CSA. The above is the minimal structure

necessary to automate:

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margin calls (cleared transactions) on a daily

basis;

reconcile changes in value of collateralized

contracts;

pledge, receive and segregate collateral;

Obviously to work seamlessly it requires theintegration of the ICM with other existing

internal systems that will deliver relevant

information. In particular, the creation of

central repositories of collateralization

agreements (i.e., the contractual terms defining

how collateral must be exchanged) and of the

corresponding the directories of eligible assets,

are essential for achieving ICM.

Closely related to the technology aspect is the

methodological one: the value change of

collateralized transactions and the consequent

reconciliation and exchange of collateral are

possible only relying onto precise and validated

valuation models.

Furthermore, new metrics must take into

account the collateral value. In fact, in addition

to the infamous (Counterparty) Credit Value

1For a quantitative demonstration of FVA and LVA

within the valuation of collateralized derivatives,please refer to A. Castagna, Pricing of derivatives

contracts under collateral agreements: liquidity and

Adjustment (CVA), which measures the

expected losses originated by the credit risk of

the counterparty (accounting for the collateral

risk mitigation), other measures such as the

Liquidity Value Adjustment(LVA ), which takes

account of the difference in performance

between the collateral and a risk-free security

and the Funding Value Adjustment (FVA),

which incorporates the cost of funding,

inclusive of the collateral cost, will be the newmetrics to consider when valuing primary and

derivative contracts and manage their risk1.

Conversely, whenever the collateral is

represented by securities a bank must have

models that value such security, also simulating

its future value inclusive of the haircuts.

Both aspects, within the ICM paradigm, should

be integrated in order to forecast (as an

expected or stressed value) the need forcollateral, thus allowing the design of strategies

for locating it. It implies therefore the creation

of tools for margin simulations (initial and

variation) for cleared and bilateral transactions.

The ultimate goal is to optimise

collateralisation, subject to the constraints

funding value adjustments. Iason Research Paper.

Available on www.iasonltd.com

Table 3. Areas involved in the Integrated Collateral Management implementation.

Direct connection to Central

Counterparties and/or Clearing

Broker

Automated procedures to exchange

collateral on bilateral basis

Automated reconciliation ofvariation values of contracts

Link with other internal systems to

build:

Centralised inventory of

collateralised contracts

Centralised inventory of

eligible assets and their

movements

Evaluation models of derivative

contracts to account for

adjustments due to collateral:

CVA

LVA

FVA Evaluation models for eligible assets

and haircuts

Scenario engines to produce

expected and stressed projection

for collateral offering and demand

Optimisation procedures to manage

and minimise the costs related to

the collateralisation activity

Front-office: identification of the

department that will run the

integrated collateral management:

Collateral Desk

Repo Desk

Treasury Internal transfer pricing mechanism

to charge relevant desks with the

costs related to the collateralisation

activity

Legal: more important role in the

collateral disputes

Back-office: more complex

procedures of the collateralisation

activity

Risk Management:

Counterparty

Liquidity / Market

Operative

Systems & Technology Infrastructure Models & Analytical Tools Organisation

IntegratedCollateralMan

agement

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applied by the main variables involved (funding

cost, haircut, asset volatility, evolution of

supply and demand for collateral, etc.).

The ability to use a wide range of assets to

manage liquidity and to cover margin calls onderivatives, originates from the margining

requirements for both, transactions cleared

through a CCP and bilateral transactions, in

addition to the capital charges imposed by the

Basel III regulatory framework. Collateral held

towards OTC derivatives transactions is very

likely to increase (JP Morgan estimates a 50%

increase in collateral usage). In this scenario,

there will be a significant reduction in the

availability of "eligible" securities in the face of

a significant increase in the cost of raising them.

Collateral transformation will become then a

key strategy for banks. In fact, Market Makers

and Institutional Clients will be required to hold

a significant buffer of collateral to meet

margining demands, both as initial margin (IM)

and as variation margin (VM).

There follows that also collateral optimisation

will become a significant strategic activity. As

the cost of the collateral will increase, collateral

management and its optimisation will be the

guiding criterion for efficiency. Those banks

that can efficiently manage cleared and

bilateral margining will enjoy a significant

competitive advantage.

On top of this shakeup of the technology

infrastructure and methodology policies, there

must be a full revision of the bank organisation.

In other words, another integration must take

place within the departments involved in the

collateral management: Treasury & Finance

Department, Risk Control, Legal and Back

Office.

It seems straightforward to think that, in the

design of a new organisational model

identifying responsibilities, the pledging activity

should be the responsibility of the Front Office.

We outline here two possibilities, although not

necessarily alternative and non-exhaustive:

Responsibility assigned to the existing

Treasury or Repo Desk , in both cases by

extending the job description by virtue of

the new ICM ;

Creation of a Collateral Management Desk,

with a job description defined in the ICM,and with a strong emphasis on collateral

management skills.

The first option plays on the efficiency of such

choice as it simply extend activities already

carried out by the departments and the ability

to leverage on the clear interdependence of

ICM with liquidity and funding management

and Repo transactions.

However, despite these advantages, the second

solution allows for the creation of a department

that has a precise focus on collateral

management and the necessary skills in order

to achieve an effective collateral management

optimisation. In any case, it will be a desk with

strong ties to the Treasury and Repo Desk.

The Back Office will be certainly affected by the

change due to an increase in the number of

collateral exchanges and the Legal Department

will be likely required to advise on a growing

number of disputes in valuations and

assessments.

Risk Control/Management, to a different

degree, will have to monitor credit exposures,

the valuation of the collateral mitigating the

credit risk, the cost of funding and in general

costs related to locating and segregating the

collateral.

Also, aspects related to the liquidity of the bank

will be measured and controlled in the context

of collateralisation. Finally, a dramatic increase

of transactions will translate into higher

operational risks (and consequent monitoring).

Last, but not least, banks should design a

system of internal transfer pricing for collateral,

to supplement existing systems, allowing for a

proper allocation of costs among the relevant

departments. FVA and the LVA should

constitute the essential tools for the design of

such a system of internal transfer pricing.

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The Structure of the Integrated

Collateral Management

The building blocks of the ICM are shown in

Table 4. In short, one has to consider, on the

one hand, the offering, and the demand of

collateral on the other hand.

The collateral offering is made of the total

eligible assets, owned by the bank with

different possible rights: purchases, repo

operations, security lending, received

collateral, if re-hypothecation is allowed.

Collateral demand is determined by all the

collateral agreements embedded within the

contracts, besides the collateral requests for

received loans or originated by asset backed

securities.

A monitoring and management tool is linked to

each of the two elements of the ICM. In more

detail, the collateral offering is monitored by

the Term Structure of Available Asset(TSAA);

2

For a thorough treatment of the TSAA, see chapter6 in A. Castagna e F. Fede, Measuring and Managing

Liquidity Risk, 2013, Wiley.

the collateral demand is managed by the

Allocation Tools.

The TSAA shows the amount of a security (and,

on an aggregated basis, of all the securities)

available for collateral purposes on each datewithin a predefined time horizon.2

Table 4. Building blocks of the Integrated Collateral Management.

Purchased assets

Assets received via:

Repo

Security lending

Collateral from counterparties (of re-

hypothecation is allowed)

Integrated Collateral Management System

Offering

Variation and Initial Margins from:

Collateral agreements (CSA)

Central Counterparties

Reverse Repo

Collateral for received loans

Asset Backed Securities

Demand

Collateral

TSAA Allocation Tools

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The TSAA is affected in several ways by the

following operations: purchase/sale, security

lending/borrowing, sell/buy back and utilisation

of assets as collateral. Each operation has a

different effect on the holding, by the bank, of

the involved security and hence on the

possibility of its use for collateral purposes. An

example is in Table 5, where the availability of a

bond is shown over a given period, considering

the movements originated, in this case, by repo

and reverse repo operations.

The example shows a TSAA with minimalfeatures, but a robust ICM should aim at

building a TSAA that includes the stochastic

nature of the value of the eligible assets, and

also of the applied haircuts. In practice, it

should be possible for the bank to have a view

of the expected and stressed movements and

value (net of the haircut) of each eligible asset.

Then, the final step is to produce this

information at a portfolio level, so as to capture

the potential diversification benefits.

A government bond portfolio, issued by several

European states, is shown in Table 6. By means

of a suitable modelling framework, it is possible

to forecast, over a given time horizon, the

expected and stressed value of the portfolio as

collateral, i.e.: taking into account also the

haircut that are also considered stochastic andinversely related to the bond prices.

Table 7 presents the final result for a portfolio

of 30 million Euro notional, evenly allocated on

the 20 bonds shown in table 2.

Table 6. Treasury bonds issued by Italy, France, Germany and Spain, held by the bank as eligible

assets.

Table 5. TSAA of a bond.

Time Operation TSAA

Collateral

Value Price Hair-cut

0 Buy 99.85 15%

0.01 Settlement 1,000,000 848,938 99.85 15%

0.25 Repo 500,000 424,469 99.85 15%

0.75 End Repo 1,000,000 849,363 99.90 15%

1.25 Rev. Repo 1,500,000 1,274,044 99.90 15%

1.75 End Rev Repo 1,000,000 849,788 99.95 15%

2 Coupon+Reimb - 100.00 15%

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The collateral allocation tools allow to monitorand manage collateral transfers related to

agreements included in the existing contracts.

Besides having a complete and detailed view of

the collateral requests, the tools should also

make possible to have a view in their projected

trajectories, so as to let the bank to set up an

informed and effective collateral provisioning

plan.

The forecasting tools for the collateral

absorption are of paramount importance tomanage the collateral agreements with central

counterparties or other counterparties (CSA). In

this respect initial and variation margins

projections, at a portfolio and netting set level,

take on a preeminent role.

An example of the evolution of the variationmargin required for a 10 year swap is shown in

Chart 1. The projection of the collateral needed

to match the margin calls are plotted for the

average and stressed (99thpercentile) levels.

In almost all OTC derivative contracts currently

traded, either centrally or bilaterally margined,

both parties have to post collateral for the

Initial Margin (IM). The IM can be considered a

sort of VaR of the position of the surviving party

over the margin period of risk and the grace

Chart 1. Projections of expected and 99th percentile collateral for a swap expiring in 10 years, with a

notional amount of 100 million euros. Amounts in Millions.

Table 7. TSAA at aggregated level for a portfolio of 30 million Euros, comprising the bonds in table

6. Amounts shown in Millions.

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period, spanning between the default event,

the assessment of the exposure and its

liquidation.

Also the evolution of this quantity, exchanged

often, even daily, notwithstanding its name,

must to be estimated to allow for its effective

funding.

At a modelling level, the IM entails an even

greater difficulty than the variation margin.

Actually, one has to replicate (or reverse-

engineer) the IM models used by the different

Central Counterparties with which the bank

operates. Then, they have to be embedded

within the simulation engines so as to simulate

the future margin levels.

In the remaining paragraphs we present a

practical example of IM simulation for a

portfolio of plain vanilla fix-to-floating rate

swaps, with maturities running from 1 to 10

years.

To calculate the IM, we adopted a Historical VaR

approach, with time window of 1266 days

(similar approaches have been developed by

Clearing Houses to determine the IM). To

simulate the future evolution of the interest

rates, we have employed a one-factor CIR (Cox,

Ingersoll e Ross) model.

The sample is formed by 6 ideal portfolios of

swap contracts with different maturities and

notional amounts. They can represent, in a

stylised fashion, some typical configurations of

the banks swap portfolio. The notional

amounts of the single contracts, for the

different maturities up to 10 years, are shown

for each of the 6 portfolios, in Table 8.

The estimation of the IM is based on their

distribution, determined via simulation. From

this, the expected, 1st and 99th percentile

evolutions for margins are identified for each

day until the expiry of the last contract (10

years). Results are shown in Table 9.

This is just a simplified example of the metrics

and of the indications that the collateral

allocation tools have to provide to the relevant

actors in the bank.

In reality there are several problems to be

coped with to achieve a robust and effective

ICM, and it is not possible to examine them in

this document, which is only introductory and

aiming at presenting an overview on the topic.Suffice to say that the two pillars of the ICM

Table 8. Notional amount of the swap contracts inserted in the 6 portfolios, for maturities running

from 1 to 10 years. Amount in Millions.

0,00

0,20

0,40

0,60

0,80

1,00

1,20

1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y

Port. 1

-1,20

-1,00

-0,80

-0,60

-0,40

-0,20

0,00

1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y

Port. 2

-1500000

-1000000

-500000

0

500000

1000000

1500000

1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 1 0Y

Port. 3

-1500000

-1000000

-500000

0

500000

1000000

1500000

1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 1 0Y

Port. 4

0

200000

400000

600000

800000

1000000

1200000

1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 1 0Y

Port. 5

-1200000

-1000000

-800000

-600000

-400000

-200000

0

1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 1 0Y

Port. 6

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All this implies that the ICM is basically passive,

since the bank does not have the necessary

toolkit to plan collateral and liquidity policies.

The minimal phase must definitely take over

from the inadequate phase: the collateraloffering and demand are managed by basic, but

suitable enough, equipment to cope with the

collateralisation processes. Amongst the

minimal requirements, on the offer side, we

identify a centralised and automated inventory

of all eligible assets and a TSAA that monitors

their movements. It is possible to disregard, in

this phase, stochastic modelling to define the

distribution of the future value of the collateral.

Similarly, on the demand side, the minimalphase contemplates the centralised recognition

of all the collateral agreements, and a

consistent pricing and revaluation of all the

contracts subject to collateralisation, at least to

allow for the calculation of the amount to be

daily exchanged as collateral.

The ICM, in this phase, allows to manage the

collateralisation activity in a point-in-time

fashion, since it is not considered the

introduction of stochastic models to plot the

projection of collateral needs beyond the very

short horizon of one or two days.

The advanced phase, which is the banksmedium term target, is characterised by adding,

to the tools of the minimal phase, the

collateral valuation and forecasting models and

of forecasts of the collateral needs. Essentially,

in this phase stochastic models are introduced,

to generate scenarios and to determine

expected and stressed levels of collateral value

and needs.

In the ICMs perspective, these models allow

also to optimise collateral processes, aiming atreducing related costs. Besides, equipped with

these models and tools, the bank will be able to

monitor and manage metrics referring to the

collateral, such as the LVA and the FVA.

In addition, it is important to stress that the

TSAA and the collateral allocation tools will be

strictly integrated: the movement of collateral

is originated by the demand, but it will then

Table 10. Evolution of the Integrated Collateral Management.

Inadequate Minimal Advanced

Collateral

Offering

Collateral

Demand

Integrated

Collateral

Management

ICM

Non existent or fragmented TSAA

Aggregation of the available eligible

assets operated manually

Centralised and automated

inventory of all available eligible

assets

Basic TSAA:

Indication of the

movements of the eligible

assets

Point-in-time haircuts

Advanced TSAA:

Indication of the

movements of the

eligible assets Future expected and

stressed evaluation prices

and haircuts

Monitored by the Back-office, in

stead of the Front-office

Tools to evaluate the collateral

demands are non existent

Correct valuation of the contracts

that produce collateral needs

Recognition of the collateral clauses

for each entity and/or contract

Point-in-time (business day)

definition of the collateral needs

Projection of the collateral needs:

Expected and stressed

evolution of the variation

and initial margins

Projection of collateral needs for

loans and asset backed securities

Passive and driven by the requests

from counterparties

Tools to plan liquidity and collateral

provision non existent

Aggregation of the received and

posted collateral at counterparty

level

Point-in-time (business day)

management of the collateralisation

activity

Aggregated evaluation of the

costs related to the

collateralisation activity

Active management of the LVA e

FVA at aggregated level

Integrated scenario generation

for collateral demand and

offering, to plan collateral policies

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affect the TSAA via the future availability of

eligible assets. The circular cause-effect process

must be modelled and treated with

optimisation techniques.

Conclusions

To sum up what we have examined above, the

collateral management will be a central activity,

with remarkable consequences also on the

organisation of the bank

Table 11 shows a stylised architecture of the

ICM. Within this framework, the bank has to

specify the sophistication level of each

component, in accordance to the complexity of

its collateralisation activity.

Generally, we can elaborate range of actions to

be taken, aiming at:

Correctly estimating the margin calls, by

means of tools that simulate the future value

of derivative contracts and portfolios.

Modelling and creating scenarios for the

relevant market risk factors, by means of

analytical tools that will identify the

opportunities to reduce the collateral needs.Designing an organisational structure capable

to:

run CSA collateral agreements, so as to

ensure a dynamic management of the

flows and an optimised use of the

collateral;

run the margining activity originating

from the regulatory obligations for non-

centrally cleared contracts;

provide collateral services to external

and internal clients;

identify the type of collateral to post(cash or assets), minimising the costs

related to the operations;

monitor and value the collateral

received, assessing the opportunity to

re-hypothecate it subject to settlement

constraints;

timely reconcile the value of

collateralised portfolios with the

counterparties;

monitor the mark-to-market exposure

for each collateralised counterparty.

We believe that the next crucial steps will be:

Set-up of a Collateral Management Desk: this

will allow a unified an integrated view of the

different aspects of the collateral activity,

such as the allocation of the available eligible

assets and the re-hypothecation of the assets

received as collateral;

Organisation change: it will be implemented

through the active cooperation of several

operational areas: Finance/Treasury (or

Collateral Desk), Back-office, Risk

Management, Legal.

Optimisation of collateral: a real-time view of

the available and posted collateral for all the

operational areas involved. This means that

the bank should estimate the eligible assets

Table 11. Architecture of the Integrated Collateral Management.

Collateral Agreements Archive

Data from

Accountancy

and F/O

Data fromContracts

and B/O

Eligible Assets Archive

Models and Scenario Engines

TSAA

Contract Evaluation

LVA, FVA, CVA

Collateral Estimation/Forecast

Optimisation

Risk Reports

F/O

Analytics

Support to Legal

and B/O

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movements in an integrated fashion: received

collateral posted collateral available

collateral.

In the collateral management framework

design, Iason can provide a support in theregulatory compliance processes, in the

organisational change and the implementation

of new procedures, and finally in the

development of analytical models and of

software applications.

To discuss in more details the themes examined

is this document, please contact the authors.

Antonio Castagna, Senior Risk Expert

[email protected]

Marco Ossanna, Senior Consultant

[email protected]

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Counterparty Risk; in Organisational Set-Up and in StrategicPlanning.

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