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Collateral squeeze unlikely to materialise 

October 9, 2014
COO Connect

The so-called collateral shortfall is unlikely to be as severe as some market participants initially believed although obtaining high-grade eligible collateral to post as initial and variation margin to central counterparty clearing houses (CCPs) could become more challenging.

The Bank of International Settlements (BIS) has estimated up to $4 trillion of high-grade eligible collateral may be required over the next few years once more OTC derivatives are cleared through CCPs as mandated under Dodd-Frank in the US and the European Market Infrastructure Regulation (EMIR). This could be exacerbated further by the implementation of bilateral margining of non-cleared derivatives in 2015.

“The first collateral shortfall predicted by various market participants has failed to surface as yet. That said, a lot of the regulations have been postponed, although the introduction of mandatory clearing has not led to collateral shortages. Nonetheless, I do believe there will be a ‘collateral pinch’ whereby high grade collateral is harder to come by,” said Jeannine Lehman, EMEA head of Global Collateral Services at BNY Mellon.

Read more: COO Connect

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