Collateral management: Firms face up to regulatory challenge

Collateral management has become an increasingly complex and vital component of credit risk management for the energy sector. With the EU considering reforming commodity derivative regulation, Alex Davis looks at the latest developments and examines whether they can speed up the reconciliation process and quell EU worries over OTC commodity markets

Although it is only one facet of credit risk management, collateral management has grown in importance for Europe's energy sector even before taking into account the market caution that became prevalent three years ago after the collapse of Wall Street banks Bear Stearns and Lehman Brothers.

For each market participant, keeping track of the liquidity levels across the whole trading portfolio continues to increase in complexity as growing market liberalisation combines with growing confidence