Collateral Items represented as Deals

It has been suggested that collateral items (currently captured as a list attribute against Collateral Agreements) should be represented as Deal objects that generate their own exposure (positive or negative). Here is a quick brainstorming of the implications:

• We would need a new Product called ‘Collateral’, or possibly different products for Cash Collateral, Fixed Income Collateral and Equity Collateral.

• The attributes of the ‘Collateral’ Deal would include the reference to a valid Collateral Agreement with the same Legal Entity as the Deal Counterparty, and all the columns that are currently shown in the Collateral Items list attribute.

• The Collateral product would have a set of deal measures representing the post-haircut internal and regulatory value of the collateral. Those deal measures would be ‘scalars’, i.e. would not have a time profile. Though we might have to apply an arbitrary ‘risk end date’ to Collateral Deals, say 1Y just for display purposes in our Deal Measure screens.

• Those deal measures would roll up to the ‘Net Collateral’ values shown in the Collateral Agreement referenced by the Deal.

• One should be able to do a Trial Check (but probably not an Availability Check…) on a Collateral deal, like for any other deal, comparing the exposure pre and post the entry of that collateral deal.

• After entering a collateral deal, exposure should be recalculated in real-time, like when entering any other type of deal.

• The normal violation processing should occur, i.e. the entry of non-segregated collateral given could potentially cause a limit breach.

• It is likely that collateral deals would be entered in EOD batches, in which case we may want to use the ‘raw’ (quick) deal entry mode, where revaluation doesn’t happen in real-time and violation processing is suppressed.