ISDA's collateral committee, which deals with issues surrounding the credit support annex for derivatives transactions, is focusing on three areas: establishing definitions for debt, cash and equity collateral; developing methodologies for establishing and changing haircuts; and creating a simple way for firms to amend the credit support annex. Robert McWilliam, head of global collateral management at ABN AMRO in London and chairman of the committee, said the bulk of the work would be done this fall, ahead of its April 2003 deadline for the asset definitions.
McWilliam explained that defining what is acceptable as collateral will help broaden the base of end users and firms that are prepared to use support annexes. "There is a natural tendency to only accept collateral they are familiar with... part of the purpose of this is to expand the use of different types of assets," McWilliam said.
The committee is also looking at formalizing the way that a firm changes a haircut--which is the way of making sure that the counterparty has sufficient collateral even if the market value of the securities depreciate.
Simplification of the way that the collateral within the support annex is amended is the third goal. Right now, if a firm wants to change one portion it has to review the whole annex, which can be legally cumbersome, McWilliam explained.
