LDI – MOVING FROM A DIRTY TO CLEAN CSA

One of the many after-effects of the financial crisis is that derivatives dealers have changed their pricing practices to take account of Credit Support Annex (CSA) terms.  Because collateral terms often vary from bank to bank, these changes are making it difficult for pension schemes to compare pricing between dealers, assess market liquidity, manage counterparty exposures efficiently, and prepare for future central clearing requirements.
 
As a result, increasing numbers of pension schemes and LDI managers have been working to standardise their CSAs across dealers and when doing so, have found the costs that dealers are quoting to make CSA changes to be high and variable.
 
In a short paper, we outline the rationale and key issues associated with standardising and simplifying collateral terms, explain why pricing among dealers is variable, and summarise why taking a coordinated approach to implementing CSA changes can deliver value to pension schemes.
 
To read the full paper, click here.
 
For further information on how and why moving to a clean CSA may be beneficial to pension schemes, please do get in touch.

[Please note that all opinions expressed in this blog are the author’s own and do not constitute investment advice. Click here for full disclaimer]