What are the different types of OTC derivatives?
Types of OTC Derivatives
- Interest Rate Derivatives: Here, the underlying asset is a standard interest rate.
- Commodity Derivatives: Commodity derivatives have underlying assets that are physical commodities such as gold, food grains etc.
- Equity Derivatives:
- Forex Derivatives:
- Fixed Income Derivatives:
- Credit Derivatives:
What is a collateralized derivative?
When derivatives are collateralized, the counterparty for which the derivative has a negative market value deposits every day this market value as a guarantee to the other counterparty, this collateral earning interest at a short‑term floating rate, typically Eonia in Europe.
How does collateral work for derivatives?
Because of the high risk of losses on both sides, derivatives traders generally provide collateral as credit support for their trades. That is, each party sets aside collateral as a guarantee that it can meet any losses.
What is UMR regulation?
Uncleared Margin Rules (UMR) may force significant changes to the way collateral is posted or collected as initial margin (IM) for over the counter (OTC) derivatives. Fortunately, with advanced planning and consideration of alternatives, viable options exist that may help solve counterparties’ collateral needs.
Who regulates the OTC market?
The Financial Industry Regulatory Authority (FINRA)
The Financial Industry Regulatory Authority (FINRA) regulates broker-dealers that operate in the over-the-counter (OTC) market. Many equity securities, corporate bonds, government securities, and certain derivative products are traded in the OTC market.
What is collateral for derivatives?
Derivatives Collateral means Assets of the Fund which have been pledged as collateral to a counterparty to secure the Fund’s obligations to such counterparty in connection with a Permitted Derivatives Transaction.