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                    Has Counterparty Risk been shifted to Liquidity Markets?



Asset Managers are facing a number of challenges in light of the new regulations
mandating certain OTC Derivatives to clear to central clearing houses. Not least of these
is the requirement by CCPs to exchange variation margin using cash in the underlying
currency of the trade rather than sovereign bonds as is the case currently under existing
Credit Support Annexes governing bilateral OTC trades.

Asset Managers are left in the unpalatable position of either holding back pools of cash
(in every currency in which they trade) to satisfy these daily calls (and therefore
instantly impact fund performance) or requiring asset transformation solutions to
generate cash through the repo markets.

The question is whether those repo/financing lines will still be available to funds in a
stressed market environment & if they are not, how does a fund pay its legally binding
variation call?

                                      Originally published by The Plenum Group
                                              www.theplenumgroup.com




Plenum 2013 – Financial Services Executive Search

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OTC Counterparty Risk Plenum Group

  • 1. www.theplenumgroup.com Has Counterparty Risk been shifted to Liquidity Markets? Asset Managers are facing a number of challenges in light of the new regulations mandating certain OTC Derivatives to clear to central clearing houses. Not least of these is the requirement by CCPs to exchange variation margin using cash in the underlying currency of the trade rather than sovereign bonds as is the case currently under existing Credit Support Annexes governing bilateral OTC trades. Asset Managers are left in the unpalatable position of either holding back pools of cash (in every currency in which they trade) to satisfy these daily calls (and therefore instantly impact fund performance) or requiring asset transformation solutions to generate cash through the repo markets. The question is whether those repo/financing lines will still be available to funds in a stressed market environment & if they are not, how does a fund pay its legally binding variation call? Originally published by The Plenum Group www.theplenumgroup.com Plenum 2013 – Financial Services Executive Search