Page 32 - PRIAA Glossary

COLLATERAL OPTIMISATION
The process of determining the cheapest to deliver collateral across a party’s obligations to reduce costs, while also considering collateral desirability and maintaining liquidity.
COLLATERAL POOL
A technique of collateralisation that enables an institution to post collateral to a specific party without allocating collateral to a specific transaction. Usually, collateral pools are used for central banks and central counterparties (CCPs).
COLLATERAL REQUIREMENT
The amount of collateral that needs to be transferred to satisfy the counterparty’s requirements.
COLLATERAL SUBSTITUTION
The process where one form of collateral is substituted for another.
COLLATERAL SWAP
A transaction whereby high-quality assets are lent to one party and in return the other party receives interest and low-quality assets to mitigate risk. Normally this transaction is made between banks and institutional investors, e.g., insurance or pension funds. The lender benefits from extra profits on his or her assets, whereas the borrower can cost- effectively fulfil his or her collateral obligation.
COLLATERAL TRACKING
The ability for a client to track where its collateral is located at any point in the margining process, particularly when
its collateral management is outsourced to a collateral manager or custodian.
COLLATERAL TRANSFORMATION
A service offered by financial institutions to their clients in which the quality of collateral is improved significantly. Usually, this is done by a collateral swap or by a repo.
30