Back to basics

OTC derivative portfolios grow significantly through the normal course of active flow trading, but most of the trades booked are not necessary to maintain an institution's desired risk positions versus the market. Nevertheless, as long as these trades remain in inventory, they incur operational and capital costs as well as create credit and operational risk exposure. In the event of default, they also generate legal and administrative costs.

Counterparties have the ability to terminate or unwind

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