Newer regulatory measures, such as short-selling restrictions, UCITS IV, the AIFM Directive, European Market Infrastructure Regulation (EMIR) on OTC derivatives and the proposed MiFID II measures, might require more intelligent approaches toward mitigating the cost impacts and developing commercial opportunities.
6. Asset managers should upgrade counterparty risk management systems to enable exposures to be determined by counterparty legal entity and by product on demand, ideally intraday.
Most heads of business and/or trading were already aware of the need to mitigate counterparty credit risk in this year's survey. Most respondents had put in place extra vigilance to monitor segregation of client assets or re-hypothecation.
Most firms were undertaking more frequent counterparty risk assessments, and virtually all were trying to centralize counterparty limit setting. Many firms had also tightened SLA controls and their haircuts for collateral, partly in view of the continuing Eurozone crisis and partly as a preparation for European Market Infrastructure Regulation (EMIR).
Organizations are encouraged to upgrade their counterparty risk management programs to enable them to pre-figure likely risk exposures on demand and to allow monitoring to be carried out by counterparty and asset class at will.
Firms should also revisit stock lending and collateral management processes, taking into account new regulatory developments such as the reintroduction of new short-selling restrictions and new rules around the handling of client assets (e.g., revisions to the CASS rules per the FSA's CP10/09).
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