CSAs – Regulating counterparty risk through the use of collateral payments
Jermund Molland, Liquidity Surveillance Department, Norges Bank.
Counterparty risk associated with trading in financial instruments can be substantial. This applies especially to certain types of derivatives trades with long-dated contracts. The most common way to mitigate this risk for OTC derivatives transactions is to use bilateral CSAs. CSAs enable parties to a trade to reduce risk by posting collateral to counterparties. This article describes in detail how such agreements are structured.
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