A collateral dispute is a disagreement that arises when a party receiving a margin call does not accept the amount demanded. It occurs mainly under a bilateral collateral agreement for over-the-counter derivatives, where each side values the portfolio itself. The usual causes are trades booked by one party and not the other, different valuation models or market data, and timing differences.
Market practice and the credit support annex (CSA) set out the steps. The disputing party transfers the undisputed amount on time and notifies the other of the difference. The two sides then compare records through portfolio reconciliation to find the trades responsible, and if they still disagree, the exposure may be fixed by obtaining quotations from dealers. Regulations in the European Union and the United States require firms to have dispute resolution procedures and to report large, long-running disputes to regulators. Preventing disputes is a main purpose of collateral reconciliation.