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Collateral Management: A Review of Market Issues 

October 14, 2015

The Field Effect and BNY Mellon, The Bank of New York Mellon Corporation

Collateral management has become a sophisticated discipline with financial institutions often making collateral management a dedicated role. A presumed abundance of liquidity and leverage in the period prior to 2008 meant collateral management processes were often fragmented, imprecise and imperfect in practice. The events of the global financial crisis exposed some products and institutions in financial markets as severely under-collateralized, while other financial markets dried up due to a sudden absence of either trust or collateral. The regulatory response to the crisis has increased the activities and transactions for which collateral is required, as well as leading to demand for higher quality collateral. As a result, collateral management has become a much more urgent, business-critical concern for a much wider range of institutions active in the global securities and derivatives markets, encompassing banks, brokers, investment managers, hedge funds, pension funds, insurance firms and other asset owners. To a lesser extent, multinational corporations will also be drawn further into the collateral world, both due to their use of OTC derivatives and as providers of cash via the repo markets, where they will look to balance yield with security, taking secured exposure over unsecured Bank deposits.

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