New best practices released in light of CFTC mandate to centrally clear OTC derivatives
Automation of notifications between investment managers and third-party providers is now high priority
ISITC (The International Securities Association for Institutional Trade Communication), the industry trade group focused on standards in transaction processing and related communications, today released a new Market Practice for cleared derivatives and contract notifications between investment managers and third party providers, including custodians, accounting agents and prime brokers. Developed by the ISITC Derivatives Working Group, the Market Practice aims to clarify the notification process in order to bring greater automation and accuracy to the industry.
“ISITC recognized that with the mandate to centrally clear OTC derivatives, market participants were going to need to focus on automating what has largely been a manual trade notifications process,” comments Steve Wisneski, Executive Sponsor of the ISITC Derivatives Working Group. “We came together to develop standards that industry participants could adopt, particularly as cleared derivatives volumes grow.”
The “Cleared Derivatives Investment Manager to Third Party Contract Notifications” Market Practice focuses specifically on post-allocated trade events in the lifecycle of cleared OTC contracts. Contract notifications from investment managers enable settlement, accounting, valuation and reconciliation and are a fundamental part of ensuring STP in OTC derivatives trading.
The Derivatives Working Group outlines standards for swaps that will be required to clear and will first be impacted by mandated central clearing. The initiative first began in December 2011 and brought together ISITC members from across the OTC trade lifecycle. We fully expect to continue to modify and enhance the standard as the clearing process evolves and the regulations become clearer.
Jan Ellis Snitzer, Chair of ISITC and Vice President at Loomis, Sayles & Co., comments, “ISITC maintains an unrelenting focus on bringing much-needed standards to the financial services industry. As the OTC derivatives market structure continues to evolve, what became clear to our organization was the increasing need for automation of centrally cleared derivatives. The top priority for many of our member firms is efficient, standardized cleared swaps communications. We’re pleased to be releasing this valuable Market Practice at such a crucial time and we encourage all industry participants to review and adopt these proposed standards.”