He or she is the party that is required, pursuant to the terms of the applicable credit support arrangement, to provide collateral in respect of its obligations.
A Collateral Provider is refer to the transferor of collateral (under a title transfer document) or the party granting a security interest in collateral (under a security interest document), as applicable.
Similarly, the term Â“Collateral TakerÂ” is used to denote the other party, i.e. the party that is the transferee
of collateral or the secured party.
It is an arrangement under which one party (the collateral giver) delivers some form of property, typically securities and/or cash, to another party (the collateral taker) and agrees that the collateral taker may use that property, in the event of a default by the collateral giver, to satisfy outstanding obligations of the collateral giver to the collateral taker.
Collateral arrangements in the financial markets typically involve the delivery of securities or
cash by a party to another participant in the market (which may be a counterparty to a
privately negotiated transaction, a clearing house for an organised market, a settlement agent
for a settlement system or some other market participant with a potential credit exposure to
that party) either:
- subject to a pledge or other security interest (referred to as “pledge collateral” in this
- by outright sale, as, for example, in the case of a repo transaction, or by deposit, in the
case of cash collateral (title transfer collateral)
Impediments in Europe
ISDA highlight the main legal impediments in Europe to the efficient use of collateral:
- cumbersome and impractical rules hampering implementation of pledge collateral arrangements
- cumbersome and impractical rules hampering enforcement of pledge collateral
- legal restrictions on the use of pledge collateral by the secured party
- uncertainty regarding the enforceability of title transfer collateral arrangements
- uncertainty under existing conflict of laws rules as to which law applies to key aspects of
the collateral arrangement, including enforcement
- vulnerability of collateral arrangements to the rights of third parties
- vulnerability of Â“top-upÂ” deliveries of collateral under mark-to-market collateral
arrangements to avoidance under preference and similar insolvency rules
In addition, many jurisdictions have additional specific problems or uncertainties preventing the efficient use of collateral (for example, specific difficulties regarding the use of floating charges in the United Kingdom).
There is a big variance of rates applicable to cash collateral in the market. In many European countries, market practice has settled upon an appropriate overnight interest rate, and a standard source to reference that rate. In other countries there is no such authoritative reference rate, or there is a diversity of market practice observed.
While arrangements involving cash collateral raise problems, greater difficulties are associated with collateral arrangements involving securities.
Spanish Translation of collateral line
This is the legal translation of English to Spanish in relation to collateral line and / or a definition of this topic: LÃnea Colateral (in Spanish, without translation of the dictionary entry).
Collateral in International Trade
Meaning of Collateral, according to the Dictionary of International Trade (Global Negotiator): An interest in property given by a debtor to a creditor in order for the creditor to secure payment of the debt. For example, an applicant for a letter of credit might pledge the goods for which the credit is opened as security to the issuing bank.
- As to collateral Consanguinity
- and Warranty
- Collateral security