Mastering Collateral Management and Documentation

Chapter 1: Introduction * History of Collateral in Europe and the USA. * Application of collateral to derivatives exposure. * Early collateral management systems. * Need for standardised documentation. * Documentation in the market today. Chapter 2: Collateral Management from a European perspective * How exposure and collateral are monitored. * Important matters for collateral managers to know and establish:- - scope of derivatives products to be collateralised. - types of eligible collateral. - frequency of marking to market and collateral valuation. - Thresholds - Initial margin - Haircuts - Minimum Transfer Amounts - Top-up collateral - Re-use of collateral - Excess collateral - Substitution of collateral - Interest payable on cash collateral - Dispute procedures - Reconciliation of collateral at regular intervals - What happens in a collateral default - Management of interest and income payments on collateral - Co-ordination of collateralisation through various branches and how to achieve a global picture * Screen examples to illustrate how a collateral call is made. Chapter 3: Legal issues relating to collateral from the European and US perspective * Security interest and title transfer routes * Recharacterisation Risk * Enforceability * Diversity of laws in Europe affecting collateral perfection and enforceability * The draft EU Directive on Collateral * The US legal perspective on collateral * The ISDA Collateral legal opinions * Collateral held in central security depository systems (e.g. Euroclear, Clearstream and BONY) and the rights of parties. Chapter 4: Credit issues relating to collateral * Permissible types of collateral * Haircut methodology * Concentration risk * Correlation risk * Market risk * Liquidity risk * Documentation risk Chapter 5: The ISDA Credit Support Documents * The English Law ISDA Credit Support Annex* The New York Law ISDA Credit Support Annex* Differences between the New York Credit Support Annex and the English Law Credit Support

Paul Harding is Managing Director of Derivatives Documentation Ltd, a derivatives consultancy and project management company based in the City of London. Its clients include many of the world's leading banks. Christian Johnson is an associate professor based at Loyola University Chicago School of Law.

"While this book is mainly focused on the documentation issues surrounding Collateral Management it also provides a good overview of other aspects of Collateral Management. ISDA provides a set of documents for cross border securitisation that is neither self-explanatory nor easy to handle And this book will help market participants at all different stages of the collateralisation process. It provides guidance to both institutions, on how to formulate their own Collateral Policy, and to negotiators concerned with the day to day negotiation of Collateral Agreements. Paul Harding has done a great job." Wilfried F. Schutte, Banksyndikus, Legal Services "An excellent review of an important and complex area, analysing the critical legal, operational and credit strands together in one volume. This will add to the understanding of an increasingly vital area of risk management, where the consequence of any failure is that a false sense of security may be the only security you are left holding! A fine complementary volume to Mastering the ISDA Master Agreement, explaining in detail not only the legal complexities but also the important operational and credit considerations. Not only a 'practical guide for negotiators' but also valuable for credit and operational risk professionals. It includes a full review of not only the widely used ISDA collateral documents but also the new 2001 Margin Provisions, which will help to spread better understanding of this new untested document and may lead to greater acceptance in the market." Keith Spiller, Executive Director, UBS Warburg "Comprehensive yet practical, this timely volume offers lawyers, risk-managers and documentation specialists the necessary insight into today's collateral management practices. Additionally it offers those instutions that wish to start-up their collateral program a well-structured overview of the issues under consideration both from a European and US perspective." David Suetens, Senior Vice President, Risk