Collateral management is a critical, though often overlooked and/or misunderstood, component of derivative-based strategies. Ignoring collateral management can lead to capital inefficiency and unnecessary risk. As regulations continue to impact the derivatives markets, collateral is going to be an increasingly important topic, and more cash/securities will be required for margining and implementation.
This Strategy Spotlight explores the basics of collateral for both exchange traded and OTC derivatives, and compares how those processes deviate. The paper also discusses the collateral operations processes at Russell Investments.