Between AIG and the push for central clearing of OTC derivatives, collaterals has become a pretty hot topic lately. Yet again the focus is on Goldman, with claims that while they are demanding more collateral from trading counterparties they are unwilling to post the same levels of collateral on their own trades. And as with most things Goldman does, this is making them buckets of money. An excerpt:
When contracts are negotiated between two parties, collateral arrangements are determined by the relative credit ratings of the two companies and other factors in the relationship, such as how much trading a fund does with a bank, McPartland said. When trades are cleared, the requirements have “nothing to do with credit so much as the mark-to-market value of your current net position.”
“Once you’re able to use a clearinghouse, presumably everyone’s on a level playing field,” he said.
Still, banks may maintain their advantage in parts of the market that aren’t standardized or liquid enough for clearing, McPartland said.