The recent dustup centers around the fact that, in a bid to squeeze out a bit more profit, securities lending managers got exotic in how they invested the short-sellers' collateral.
Under that program, the organization's securities were lent to short-sellers in exchange for cash collateral, which the bank then invested.
Many more swap transactions are heading for clearing houses, which stand between buyers and sellers and collect collateral centrally.
Instead, it is held as collateral to assure the seller's repayment of the loan.
They fear the higher rates may incite bond clearing houses — the middlemen between buyers and sellers of the bonds — to demand higher collateral payments from traders of Italian debt.
As a clearinghouse Nasdaq will sit between buyers and sellers, accounting for their trades and holding collateral to make sure those trades settle.
More commonly, though, ownership is muddy for more mundane reasons: an artwork may carry liens after being used as collateral for a loan, or a seller may not have full authority to sell the piece, as in a divorce.
The short-seller borrows the shares, replaces them with cash collateral and promises to both return the shares on demand and cover dividends paid out in the meantime.
The risk committees there will help decide what prices will be charged for clearing trades, on top of fees banks collect for matching buyers and sellers, and how much money customers must put up as collateral to cover potential losses.
In addition, regulatory changes have increased the amount of collateral required for these trades, further constraining the number of option sellers.
Every minute spent sending marketing collateral or pulling listings information is time that could have been spent with sellers and buyers closing homes, which is ultimately how realtors get paid.
