How Cash Collateral Works in OTC Agreements

Summary

This short exchange clarifies what it means to post cash collateral in an over-the-counter transaction. Cash collateral is transferred electronically; it does not mean that another security is posted in place of the stated cash. The response also explains that the receiving party generally owes interest on the cash to the posting party.

The interest rate is typically specified in the credit support annex, or CSA. For US agreements, the answer gives overnight Fed Funds as a usual basis. The exchange does not detail operational mechanics, exceptions across agreements, or the collateral’s broader valuation and risk treatment. It therefore establishes the basic cash-transfer and remuneration convention, while the particular rate and terms must be checked in the governing CSA.

Key ideas

• Cash collateral in an OTC transaction is transferred electronically.
• The receiving party generally pays interest on the cash to the posting party.
• The CSA specifies the applicable interest terms.
• In US agreements, overnight Fed Funds is cited as a usual interest basis.

Tags

# Cash as Collateral in OTC Market


# Cash as Collateral in OTC Market












In OTC market Collateral Posting as cash is normal, so when it is said

Collateral Posted as USD CASH

Does that mean Actual amount of currency is posted electronically (or any security is posted) and does it carry any interest Rate Risk?

## Answer by dm63 (score 2, accepted)

https://quant.stackexchange.com/a/36366

It means that cash is posted electronically. The party receiving the cash must pay interest on it, usually Fed Funds on an overnight basis in the US, specified in the CSA (credit support annex).

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.