Citibank 2013 Annual Report Download - page 277

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Exposure to credit risk on derivatives is impacted by market volatility,
which may impair the ability of clients to satisfy their obligations to the
Company. Credit limits are established and closely monitored for customers
engaged in derivatives transactions. Citi considers the level of legal certainty
regarding enforceability of its offsetting rights under master netting
agreements and credit support annexes to be an important factor in its risk
management process. For example, because derivatives executed under
master netting agreements where Citi does not have the requisite level of
legal certainty regarding enforceability, consume much greater amounts
of single counterparty credit limits, than those executed under enforceable
master netting agreements, Citi generally transacts much lower volumes of
derivatives under master netting agreements where Citi does not have the
requisite level of legal certainty regarding enforceability.
Cash collateral and security collateral in the form of G10 government
debt securities generally is posted to secure the net open exposure of
derivative transactions, at a counterparty level, whereby the receiving party
is free to commingle/rehypothecate such collateral in the ordinary course
of its business. Nonstandard collateral such as corporate bonds, municipal
bonds, U.S. agency securities and/or MBS may also be pledged as collateral
for derivative transactions. Security collateral posted to open and maintain
a master netting agreement with a counterparty, in the form of cash and
securities, may from time to time be segregated in an account at a third-party
custodian pursuant to a tri-party Account Control Agreement.