Asia clearing surge raises concerns over eligible collateral

Scarcity of high-quality liquid assets gives rise to liquidity risk worries, say banks

Frederick Shen, speaking at Asia Risk Congress 2017

A surge in over-the-counter derivatives clearing in Asia following the introduction of non-cleared margining rules has given rise to concerns over the increasing scarcity of high-quality collateral in the region, according to OCBC Bank’s Frederick Shen.

Central counterparties (CCPs) accept a narrow range of collateral as initial margin, typically allowing firms to post only high-quality liquid assets (HQLA) such as government bonds. Variation margin payments must generally be made in cash.

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