West Wheelock Capital: removing rollover risk
The short duration of collateral transformation deals creates rollover risk for entities looking to margin longer-term trades – Manish Kapoor of West Wheelock Capital has a solution
The concept of collateral transformation has been around since mandatory clearing and bilateral margining were first mooted. But while the idea is obvious and simple - give your illiquid collateral to a counterparty in exchange for assets that can be used as margin in over-the-counter derivatives trades – practical issues have stopped it taking off.
A key hurdle has been the duration lenders of collateral are willing to offer. In the US and Europe, typical counterparties are not keen to extend
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