New capital markets regulations in the EU and US impose limits on the ability of investment banks to post high-yield fixed income securities to central counterparty clearinghouses (CCPs) as collateral against both proprietary and buyside client OTC derivatives trades.
Limits on the use by banks of only high-grade collateral to novate derivatives trades at CCPs raises the question: Is there enough long-term supply of high-grade collateral available in the market to match capital markets demand for the fixed income securities?
GreySpark Partners consultant Malavika Shekar explores issues related to the pro-cyclical nature of collateral in the clearing world.
