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Non-Tech : Derivatives: Darth Vader's Revenge
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To: Enigma who wrote (200)9/26/1998 6:58:00 PM
From: Henry Volquardsen   of 2794
 
E
It depends on the transaction and who they are dealing with. A lot of the big numbers you see in the leverage figures are bond repos. So in those cases the bonds collateralize the lending. Problem is when price movements in the collateral reduce its value.
As a general rule I would say that most hedge funds have to provide margin and security for their positions. A couple of problems arise with lenders who cut corners in the back office and do not monitor the value of the collateral. This can cause nasty surprises. A more troubling concern at the moment is that it appears a number of firms were competing for business with certain prestige funds by offering easier credit terms.

Henry
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