In the current economic climate it is more important than ever for companies to keep a close eye on their risk exposure. As a result the management of collateral has become increasingly significant as investors, counterparties, risk managers and regulators seek to mitigate the risks prevalent in today’s turbulent financial and commercial markets. Therefore, the use of collateral is now a major part of the procedures and processes associated with trading strategies and operations.
In order for you to achieve the successful processing and management of collateral within your organisation you will need a thorough practical understanding of the overall processes involved. This intermediate level program takes you through the purpose and process associated with the calculation of margin calls and use of collateral, the types of collateral used and the operational and risk issues associated with managing collateral. The aim is to provide you with the clarity needed to ensure the secure and controlled processing of collateral. As a result you will go back to work with the ability to assist your organisation to minimise costs and maximise opportunities associated with the giving and receiving of collateral.
TARGET PARTICIPANTSThis course is suitable for anyone who wants to get to grips with the collateral management process. This will include professionals in the following job functions:
Credit controllers, risk managers, credit risk professionals, portfolio support staff, structurers, legal and compliance staff, operations staff, collateral management, audit and securities lending professionals
The first part of the course will cover the purpose of collateral. Collateral is a means of managing counterparty risks and as such has been used for many years in the areas of mortgages, loans, derivatives transactions and securities financing. Session one explains the background to the use of collateral and the drivers behind the development of the wider use of collateral.
Grasp the principles and practicalities of effective collateral management
Upon completion of this programme, participants will:
Learn how and why collateral is used and the associated procedures, processes and controls that are essential for its success
Demystify the complexities of collateral management terminology
Get to grips with the operational flows within the collateral life cycle
Gain techniques to add value to your business by ensuring that the assets used as collateral are the most efficient whilst maintaining the required level of risk mitigation
Develop an understanding of how the collateral management process should be managed and therefore enable you to structure an operational process that will work for your business
The post 2007/8 environment
Counterparty risk– Default risks– Exposure risks
The Role of CCPs
Controlling the risk of members
Business Activity Attracting the use of Collateral
Securities– Clearing– Securities lending and borrowing– Repos
Derivatives– On and o√Ø¬¨‚Ç¨ exchange derivatives– Hedge funds– Leverage
The Process of Margin
Calculations of initial and variation margin in derivatives
Prime broker margin calls to fund clients
Exercise: Calculating the margin calls of a derivative position over a period of time.
Exercise: Calculating the margin for a hedge fund short and leveraged position
Collateral takers expectations
Types of acceptable collateral– Cash– Equity– Bonds
Hypothecation and re-hypothecation
Rights over collateral
Identifying the best collateral to utilise– Utilising securities financing
Managing Collateral Process Flows
Exercise: Following the life cycle of managing collateral for various situations exploring the process flow, key procedures and controls including an exercise exploring the correct procedure to be followed for a failure to provide required collateral by a counterparty
√¢‚Äî¬è Roles of key players
Exercise: How these entities manage risks and their invol