Table of Contents

Yeowart and Parsons on the Law of Financial Collateral

Yeowart and Parsons on the Law of Financial Collateral

Elgar Financial Law and Practice series

Geoffrey Yeowart, Robin Parsons, Edward Murray and Hamish Patrick

This book is the first of its kind to offer a systematic examination of the whole law relating to financial collateral. It does so in two parts. First, it explains the law created by the Financial Collateral Arrangements (No 2) Regulations 2003, the Directive it implemented and related legislation. Second, it examines how financial collateral is used in practice in a range of different markets. It will be an essential reference point for all legal practitioners operating in financial markets.


Geoffrey Yeowart, Robin Parsons, Edward Murray and Hamish Patrick

Subjects: law -professional, finance and banking law


This chapter examines the following topics: (a) how financial collateral arrangements and netting arrangements are treated in mitigating risk when calculating the capital required to be maintained by a credit institution or investment firm for regulatory purposes; (b) how the international standards on providing collateral as margin for non-centrally cleared over-the-counter (‘OTC’) derivatives, published by the Basel Committee on Banking Supervision (‘BCBS’) and the International Organisation of Securities Commissioners (‘IOSCO’), are expected to apply to financial collateral when implemented; (c) how the EU Regulation on the reporting and transparency of securities financing transactions (‘SFTR’) applies to financial collateral. The use of credit risk mitigation techniques is important in limiting the regulatory cost of a transaction for an institution, by reducing the risk weighted exposure for which it must maintain capital. Financial collateral arrangements and close-out netting are recognised as vital means of mitigating risk for this purpose. The BCBS-IOSCO rules set international standards for the margin to be exchanged by specified classes of parties to derivative transactions which are not cleared through a central counterparty. Financial collateral will be the primary source of eligible margin for this purpose. The SFTR is relevant to a range of financial collateral arrangements as these are often used in the context of securities financing transactions. These types of transaction are a common method for firms that hold securities as financial collateral to gain income or other benefits from the reuse of the securities.

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