ISDA's collateral committee is finalizing the first-ever standardized collateral asset definitions. The document will provide definitions of various types of commonly exchanged products to help speed up the negotiation stage of collateralization agreements, according to officials. "It's a step to reducing operational risk," said Robert McWilliam, head of counterparty exposure management at ABN AMRO in London. Common collateral instruments for derivatives transactions include government securities, such as U.K. Gilts. The definitions are expected to be released in May.
"This will help everyone to speak the same language," said one official, noting that the document will act as a reference point for derivatives users which might have differing internal definitions for assets from their counterparty. McWilliam said firms may have different viewpoints on acceptable instruments under broad categories of securities. For example, a British bank that is a market maker in Gilts may not be concerned which type of U.K. government debt it receives, however, a foreign bank without the same knowledge of the market might only want certain types of debt.
