ISDA releases best practice for margin call issuance and response
23 February 2018 London
Image: Shutterstock
The International Swaps and Derivatives Association (ISDA) Collateral Infrastructure Committee (CIC) has released a best practice document to develop a standard form for margin call issuance and response.
According to the CICit had in its remit to monitor issues and challenges related to the over-the-counter (OTC) collateral process, it had 鈥渋dentified a gap as it pertains to the current margin call process鈥�.
The CIC stated that, as many counterparties continue to move towards an electronic form of margin call matching and processing, there are still many counterparties who do not subscribe to an electronic form of margin call messaging.
This, according to the CIC, means a prevention of true straight through processing (STP) in the overall collateral process.
For its best practice, the CIC examined the minimum set of fields which is required to communicate the issuance of a margin call, as well as the expected response of a margin call.
The process to reach the agreement on the templates was developed through committee analysis, discussion and debates in order to reach an industry consensus.
The margin call templates presented in the best practice document include a standard form for an outgoing call and call response which consist of fields that are categorised as either required as part of the template or optional.
The document also includes definitions of each field as well as examples of different call data.
ISDA said: 鈥淚t should be noted that this best practice serves a segment of the OTC market which do not utilise any form of electronic automated margin call processing to further promote efficiency and an STP model.鈥�
It added: 鈥淚SDA CIC recommends this best practice to be used not as a replacement for current best practices but as an enhancement of them.鈥�
鈥淭he harmonisation of practice between practitioners serves to mitigate risks inherent in the collateral management process and also sets expectations and standards for new entrants to the OTC derivative market.鈥�
According to the CICit had in its remit to monitor issues and challenges related to the over-the-counter (OTC) collateral process, it had 鈥渋dentified a gap as it pertains to the current margin call process鈥�.
The CIC stated that, as many counterparties continue to move towards an electronic form of margin call matching and processing, there are still many counterparties who do not subscribe to an electronic form of margin call messaging.
This, according to the CIC, means a prevention of true straight through processing (STP) in the overall collateral process.
For its best practice, the CIC examined the minimum set of fields which is required to communicate the issuance of a margin call, as well as the expected response of a margin call.
The process to reach the agreement on the templates was developed through committee analysis, discussion and debates in order to reach an industry consensus.
The margin call templates presented in the best practice document include a standard form for an outgoing call and call response which consist of fields that are categorised as either required as part of the template or optional.
The document also includes definitions of each field as well as examples of different call data.
ISDA said: 鈥淚t should be noted that this best practice serves a segment of the OTC market which do not utilise any form of electronic automated margin call processing to further promote efficiency and an STP model.鈥�
It added: 鈥淚SDA CIC recommends this best practice to be used not as a replacement for current best practices but as an enhancement of them.鈥�
鈥淭he harmonisation of practice between practitioners serves to mitigate risks inherent in the collateral management process and also sets expectations and standards for new entrants to the OTC derivative market.鈥�
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