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A Finextra member
A Finextra member 27 September, 2012, 14:47Be the first to give this comment the thumbs up 0 likes

The ability to net across ISDA, GMRA and OSLA based contracts for collateral has been a pipe dream for a long time. It has yet to materialize properly as the internal structure of banks is siloed and contracts are rigid. I am not sure that the current downgrade in assets will change these structures. 

With regard to collateral type acceptance, securities as collateral has long been accepted practice in Europe (although not so common in the US). Advanced models, gross haircuts, concentration limits and optimisation engines are all available from the major players (JP Morgan, BoNY etc..) as well as some suppliers.

Personally I am not a big fan of rehypothecation. Didn't we get ourselves into enough trouble with CDO's ?!??

A Finextra member
A Finextra member 28 September, 2012, 12:29Be the first to give this comment the thumbs up 0 likes

Terry, thanks for your comments...

I do agree that re-hypothecation is not without its own risks but broker-dealers offering transformation services will need to find ways to enhance their revenue stream and this is one of the more straight-forward things to do. So, like it or not, it is here to stay...

And with regard to collateral type acceptance: in yesterday's published technical standards for EMIR, ESMA will allow for transferable securities and money-market instruments to be used as collateral provided, among other requirements, these have been issued by an issuer that has low credit and market risk. Bank guarantees – including commercial and central banks – can also be used as collateral. But other than that it's only gold - so risikier collateral would need to be agreed upon with bilateral counterparties.

Best regards, Tom