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Citi veteran helps banks improve collateral management

With margin requirements rising sharply, banks must do a much better job managing surpluses and shortages of collateral across all their businesses.

Bimal Kadikar, chief executive of Transcend

So much activity in financial markets is collateralized now that, for banks, the once obscure process of managing stores of security of varying quality – from cash to treasuries to corporate bonds and even equities – and posting it where it achieves the best value is becoming ever more important and ever more strained.

In its yearly margin survey, the International Swaps and Derivatives Association (Isda) found that amid the pandemic-related volatility in 2020, variation margin collected by the biggest so-called phase one firms for non-cleared derivatives increased by 29.8% to $1.2 trillion at year-end 2020, compared with $897.3 billion collected at year-end 2019.

Regulators want more derivatives trading to be cleared to take credit risk out of the system. That makes central clearing counterparties (CCPs) – each with their own rules on what is eligible for initial margin and at what haircuts – increasingly critical.

What is clear is that as volatility rises, not only does required margin climb but so too does the frequency of margin increases
Bimal Kadikar, Transcend

The value of initial margin required under global margin rules for the biggest dealers also increased last year by 22.8%.


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