Committees: Collateral Management Working Group
Asset managers and hedge funds are using OTC derivatives to manage portfolio risk causing a surge in CDS transaction volumes and a concurrent increase in collateral pledges for variance margin.
At the AMF’s May 2007 workshop, asset managers and dealers agreed there was a need to develop and implement collateral management procedures to track collateral pledged and released between market participants. Also, regulators are focusing on collateral issues including adequacy, pricing and concentration issues to protect the viability of participants in a credit event.
As a result of the workshop, the AMF formed a Collateral Management Working Group composed of asset managers, dealers, prime brokers and custodians. The working group discusses the pain points experienced by market participants in the life cycle of collateral processing including pledging, releasing, segregating, valuing and reconciling positions. The Working Group will study the problems in the collateral management operational workflow in order to focus on developing guidelines to improve the industry’s overall collateral process.
The suggested issues are:
1. requirements for 1940 Act funds (and ERISA accounts)
2. segregating versus co-mingling collateral
3. cash as collateral
4. timely release of collateral after the quarterly resets and novations,
5. preserving the counterparty's security interest
6. timely and complete reporting
7. valuation and concentration of collateral
8. periodic reconciliation by asset managers, custodians and dealers
9. Collateral requirements for institutional clients
10. Legal documentation workflow
11. Dealing with multiple legal entities of the same firm
The Working Group is chaired by Ken LeGall of Goldman Sachs Asset Management and Neil Burke of Morgan Stanley.
If you would like to sign up to participate in this working group, please contact Elisa Nuottajarvi of the AMF staff at 646.637.9266.