Collateral Management

[Michael Kimander]

How will EMIR impact the existing collateral management services provided by many banks? What are the theats and the opportunities?

[Jonas Hedlund]

Clearly, the current volumes traded bilaterally in its current form will be affected negative and instead subject to give-ups to CCP's and thus centrally cleared. This of course implies collateral requirements from CCP's in the form of initial and variation margin (to be compared to the current market provisions where only the net outstanding market value is collateralized), thus in turn implying massive additional funding costs to meet such new margin requirements. For instance a long dated IRS will eventually require initial margin corresponding to 10 percent of the nominal of the trade. Such trades are everyday business for pension funds and will of course affect the fund performance due to the additional funding costs. I'm retiring in 20 years and do have some concern...