October 31, 2018

ETD and Cleared OTC Margin Call and Communication Standards and Settlement Processing for the Buy-side

The buy-side collaborate to improve the margin call process for OTC and ETD products.

ISITC today announced the launch of its new best practice document, "ETD and Cleared OTC Margin Call and Communication Standards and Settlement Processing," in response to increased margin calls, across all collateralized products – a direct result of global regulation. ISITC's Margin and Collateral Working Group and the Securities Industry and Financial Markets Association (SIFMA)'s Asset Management Group (AMG) collaborated to develop the guidance about streamlining processing and data standardization to manage liquidity and collateral more efficiently. 

The industry's best practice guidelines include margin call data standards and margin settlement workflows between clearing members and their clients. The initial version includes margin calls and recalls, and settlements for cash and securities. Future enhancements will include substitutions and an expanded scope of data included in the standardized statements.

In March 2017, the working group began exploring streamlined processes for derivatives and cleared over-the-counter (OTC) derivatives as well as futures and exchange-traded derivatives (ETDs). ISITC opened up the discussion to leaders at SIFMA AMG, which then formed the ETD and OTC Cleared T+1 Working Group for Margin Processing. It was concluded that, in standardizing the collateral call process, accompanying data and settlement workflows, ETD and OTC cleared margin calls will now benefit from improved operational, liquidity and counterparty risk management.

"ISITC and SIFMA AMG have joined forces on such an important issue," said Amy Caruso, co-chair of ISITC's Margin & Collateral Working Group and Chief Commercial Officer at DTCC-Euroclear GlobalCollateral. "This best practice is a stepping stone to encourage firms to work together for more standardized workflows, which will improve the client experience across the sector. Not only that, but this collaboration offers a glimpse of the success that's possible if industry drivers work together to lead financial services into the future." 

Together, the industry organizations represent custodians, clearing members, executing dealers, buy-side firms, vendors and utilities, offering an ecosystem of participants across the market. As ISITC and SIFMA AMG actively encourage their members to use the strategies laid out in this document, the standardized practices are expected to improve straight-through-processing (STP) across the board.

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