For standardised exchange-traded derivatives, the use of central counterparties
Part of the reason for the rating agency initiative regarding hedge funds is self interest (that is, a fee), part the insatiable desire of investors for designer assets, but most risk pros still rely on collateral to "rate" their hedge fund counterparties
At the margin, the provisions differ from those recommended by the PWG in terms of the range of counterparties
covered by the exclusions.
This gives rise to an "expected credit exposure" and "maximum likely credit exposure" that the counterparties
should calculate and factor into the pricing of the contract.
An entity should clearly define which instruments are to be used for particular purposes, the extent and limit of their uses and the authorized counterparties
with whom the entity may enter into derivatives transactions.
For plan sponsors used to hiring investment managers at a disclosed rate, dealing with counterparties
who won't divulge their returns on derivatives transactions can be discomforting.
There was no simple way to list or search LDC's counterparties
and no single, authoritative source of counterparty standard settlement instructions (SSI) existed.
Furthermore, this breakdown in market discipline reflected weaknesses in risk-management practices by LTCM's counterparties
that were also evident, albeit to a lesser degree, in their dealings with other highly leveraged firms.
Thus, the critical factor in evaluating GSFP's credit quality is that of its counterparties
There's no credit-quality standard requiring an institution to accept only counterparties
of AA or better, but in the last five years, the quality of credit risk that sponsors are willing to accept has risen.
The ratings are based on the credit quality of the reference portfolio, the credit enhancement provided by subordination for each tranche, the strength of the counterparties
, and the transaction's sound financial and legal structures.
Aron's obligations; rated 'AA-' with a Stable Outlook) and the commodity swap counterparties
(Royal Bank of Scotland plc [RBS] rated 'AA+' with a Stable Outlook by Fitch and Royal Bank of Canada Europe Limited [RBCEL] rated 'AA' with a Stable Outlook by Fitch).