Collateralisation, the increase in clearing, and the effectiveness of netting and portfolio compression all work towards the same goal – reducing counterparty risk.
87.4 per cent of all collateral agreements are with counterparties whose portfolios of collateralised transactions include less than 100 OTC derivatives. 0.4 per cent of all collateral agreements are with counterparties whose portfolios of collateralised transactions include more than 5,000 trades.
The 2013 Margin Survey also reveals that portfolio reconciliation, which refers to the matching of the population, trade economics and mark-to-market of outstanding trades in a collateralised portfolio, is widely used and considered best market practice. For all firms in 2013, the survey evidences a clear effort to increase the frequency of portfolio reconciliation. Regulatory requirements will accelerate that trend. Building on the work done prior to the new regulations, the industry is now well-positioned to meet the new regulatory standards.
“Over the past 13 years, the Margin Survey has provided a consistent set of benchmarks for, and proved a reliable barometer of collateral use in, the OTC derivatives market”, said Robert Pickel, ISDA Chief Executive Officer. “As the survey clearly demonstrates, collateralisation remains among the most widely used and effective methods of mitigating counterparty credit risk in the OTC derivatives market, and market participants have continued to increase their reliance on collateralisation. In an evolving regulatory environment that seeks to reduce the counterparty risk associated with derivatives, the continued use of bilateral collateralisation has, in conjunction with the use of central clearing, an important role to play in risk mitigation.”
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