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Australian fund managers flex collateral muscles in bank swap deals 

August 20, 2015

Cecile Lefort, Reuters

Australian fund managers are flexing their muscles against long-dominant investment banks, demanding the banks provide them with more equitable protection in the A$29 trillion ($21 trillion)credit and interest-rates swaps market.

Investment funds are stipulating that banks post collateral in over-the-counter derivatives agreements to protect funds should a bank become insolvent, and are widening the classes of collateral they themselves wish to post.

Traditionally, investment banks have required funds to post collateral but rarely reciprocated, a fact that has changed since Lehman Brothers' collapse in 2008 made clear the risks bank insolvency could pose in such agreements.

"Banks were worried about us, but we were not allowed to worry about them," said James Alexander, head of fixed income at Nikko Asset Management. "Now, we can demand collateral from them."

Read more: Reuters

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