MICHAEL SIMMONS is a financial services operations specialist with expertise in post-trade processes. For over 20 years, he worked at a blue-chip investment bank (S.G. Warburg and Warburg Securities) where he was the manager of Fixed Income (Bond) Operations. Over these two decades of hands-on experience in the field, Mike identified a need for practitioner-oriented education programs on multiple aspects of operations, including the securities trade lifecycle, corporate actions, operational risk and associated controls. He thus began writing and delivering popular training courses, including the Operations Certificate Programme (a 5-day multi-subject examined qualification) for the International Capital Market Association. He is the author of two previous books, namely Securities Operations and Corporate Actions.

Observations on the style and content of this book can be conveyed to the author by email to info@mike-simmons.com.

Foreword xvii

Acknowledgements xix

About the Author xxi

Introduction xxiii

Part 1 Introductory Elements

Chapter 1 Fundamental Collateral Concepts 3

Chapter 2 The Nature and Characteristics of Collateral Types 7

Part 2 Sale & Repurchase (Repo) Trades and Collateral

Chapter 3 Sale & Repurchase (Repo) Trades and Collateral – Introduction to Repo 29

Chapter 4 Sale & Repurchase (Repo) Trades and Collateral – Classic Repo Trades 33

Chapter 5 Sale & Repurchase (Repo) Trades and Collateral – The Repo Trade Lifecycle 79

Introduction 79

Chapter 6 Sale & Repurchase (Repo) Trades and Collateral – Stock-Based Classic Repo Trades 101

Chapter 7 Sale & Repurchase (Repo) Trades and Collateral – Repo Trade Variations 103

Chapter 8 Sale & Repurchase (Repo) Trades and Collateral – The Global Master Repurchase Agreement 121

Part 3 Securities Lending & Borrowing and Collateral

Chapter 9 Securities Lending & Borrowing and Collateral – Introduction to SL&B 161

Chapter 10 Securities Lending & Borrowing and Collateral – Principles of SL&B 167

Chapter 11 Securities Lending & Borrowing and Collateral – The SL&B Trade Lifecycle 211

Chapter 12 Securities Lending & Borrowing and Collateral – Accessing the SL&B Marketplace 237

Chapter 13 Securities Lending & Borrowing and Collateral – The Global Master Securities Lending Agreement 253

Part 4a OTC Derivatives and Collateral

Chapter 14 OTC Derivatives and Collateral – Transaction Types – Introduction 295

Chapter 15 OTC Derivatives and Collateral – Transaction Types – Generic Structural Aspects 303

Chapter 16 OTC Derivatives and Collateral – Transaction Types – Interest Rate Swaps 311

Chapter 17 OTC Derivatives and Collateral – Transaction Types – Credit Default Swaps 319

Chapter 18 OTC Derivatives and Collateral – Transaction Types – Foreign Exchange Swaps 329

Chapter 19 OTC Derivatives and Collateral – Transaction Types – Cross-Currency Swaps 341

Chapter 20 OTC Derivatives and Collateral – Legal Protection – Introduction 349

Chapter 21 OTC Derivatives and Collateral – Legal Protection – Master Agreement and Schedule 351

Chapter 22 OTC Derivatives and Collateral – Legal Protection – Credit Support Annex 361

Chapter 23 OTC Derivatives and Collateral – Static Data 401

Chapter 24 The OTC Derivative Collateral Lifecycle 413

Chapter 25 OTC Derivatives and Collateral – The Collateral Lifecycle – Pre-Trading – Legal Documentation 415

Chapter 26 OTC Derivatives and Collateral – The Collateral Lifecycle – Pre-Trading – Static Data 419

Chapter 27 OTC Derivatives and Collateral – The Collateral Lifecycle – Trading – Trade Execution 421

Chapter 28 OTC Derivatives and Collateral – The Collateral Lifecycle – Post-Trading – Trade Capture 429

Chapter 29 OTC Derivatives and Collateral – The Collateral Lifecycle – Post-Trading – Trade Confi rmation/Affi rmation 435

Chapter 30 OTC Derivatives and Collateral – The Collateral Lifecycle – Post-Trading – Trade/Portfolio Netting 439

Chapter 31 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Portfolio Reconciliation 447

Chapter 32 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Marking-to-Market 457

Chapter 33 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Exposure Calculation 463

Chapter 34 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Receiving Margin Calls 475

Chapter 35 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Issuing Margin Calls 501

Chapter 36 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Holding Collateral 515

Chapter 37 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Post-Trade Execution Events – Introduction 531

Chapter 38 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Post-Trade Execution Events – Novation 533

Chapter 39 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Post-Trade Execution Events – Unwind 541

Chapter 40 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Post-Trade Execution Events – Offset 547

Chapter 41 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Post-Trade Execution Events – Credit Events 553

Chapter 42 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Collateral Substitution 559

Chapter 43 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Income & Corporate Action Events 567

Chapter 44 OTC Derivatives and Collateral – The Collateral Lifecycle – Trade Termination – Trade Termination 575

Part 4b OTC Derivatives and Collateral – Legal Documentation

Chapter 45 OTC Derivatives and Collateral – Legal Documentation 579

Part 4c OTC Derivatives and Collateral – Regulatory Change and the Future Of Collateral

Chapter 46 OTC Derivatives and Collateral – Regulatory Change and the Future of Collateral – Introduction 583

Chapter 47 OTC Derivatives and Collateral – Regulatory Change and the Future of Collateral – Centrally Cleared Trades 597

Chapter 48 OTC Derivatives and Collateral – Regulatory Change and the Future of Collateral – Non Centrally Cleared Trades 629

Glossary of Terms 657

Useful Websites 703

Further Reading 705

Index 707

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