Introduction

Counterparty Risk is the risk that the counterparty to a transaction could default before the final settlement of the transaction. It relates to positive balances – e.g. where the fund is owed money, as opposed to where a fund owes money to a counterparty.

Assets included with Counterparty Risk calculations, include:

  • OTC Derivatives
  • Structured products even if listed (e.g. elns, notes, certificates etc)
  • Cash
  • Deposits
  • Margin
  • Loans
  • EPM transactions like stock lending, repurchase agreements etc.

Counterparty Risk can be reduced by netting and by collateral.