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A-Team Insight Blogs

ISDA Indicates Commitment to OTC Derivatives Repositories and Greater Data Standardisation

The International Swaps and Derivatives Association (ISDA) has this week pledged its support for the establishment of global central repositories for OTC derivatives data and its commitment to the provision of relevant transaction data to supervisory authorities. The promises were made in a letter that has been sent to the heads of the primary supervisory authorities of each of the regulated signatories, which include buy side firms such as BlueMountain Capital and Goldman Sachs Asset Management and sell side firms such as JPMorgan and Citi.

The letter indicates the group’s commitment to “aggressively pursue improvements along five overarching themes”. The first of these is to increase transparency around derivatives data by using global data repositories and providing more information to regulators as requested on these instruments. This regulator required data includes “an inventory of existing forms of transparency in OTC derivatives markets by product and asset class; a study which describes and evaluates the spectrum of methods that can be used to increase transparency, analyses the benefits and costs and attempts to identify to whom such benefits and costs accrue; and relevant transaction data to support the supervisors’ own analysis”.

The commitment to a repository follows on from the establishment of the Depository Trust & Clearing Corporation’s (DTCC) new Warehouse Trust Company subsidiary as the first approved data repository for OTC derivatives trade data. The DTCC finally won approval to launch the repository last month after a solid year of campaigning.

The ISDA letter also reconfirms the group’s intentions to use clearing central counterparties (CCPs) for OTC derivatives trades in order to drive down counterparty risk in the markets overall. The issue of standardisation is at the heart of CCP clearing for these complex instruments and, to this end, the group has committed to striving to achieve a greater level of product, processing and legal standardisation. “Accordingly, work streams have been established to analyse existing, and where appropriate, potential opportunities for further standardisation by asset class and by product,” states the letter.

The other two overarching themes for the group are around risk management improvements via bilateral collateralisation agreements and an increase in STP for the entire OTC derivatives lifecycle.

So, the upshot of the letter in terms of its impact on reference data is that the group is willing to discuss data standardisation at the product level over the course of this year. This will build on items such as last year’s ISDA ‘big bang’, which had a significant impact on pricing and risk management strategies. It will also add some weight to initiatives such as the Options Clearing Corporation’s (OCC) Options Symbology Initiative (OSI) and Europe’s Alternative Instrument Identifier (AII). It is proof, once again, that data standardisation is on its way in no uncertain terms.

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