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A-Team Insight Blogs

ISITC, AMF and ISDA Publish FpML-based Standards for OTC Derivatives Communications

A global OTC derivatives committee led by the International Securities Association for Institutional Trade Communication (ISITC) has this week published a set of recommendations designed to set messaging standards for communications within the OTC derivatives market. The FpML-based standards, which will be administered by ISITC US, are focused on the contract notifications message flow between fund managers and their third party service providers.

The space is currently fairly manual and paper-based, thus involving a higher degree of operational risk and cost for industry participants than an automated process. This compelled the industry group, in cooperation with the Asset Managers Forum (AMF) and the International Swaps and Derivatives Association’s (ISDA) FpML group, to spend two years developing standards to allow for the automation of the notification part of the message flow.

Genevy Dimitrion, vice president of global product management at State Street and chair of ISITC, explains: “Because of the large increases in OTC derivatives trading volume, investment managers have put a high priority on automating notifications to relevant third parties.”

The standards are based on ISDA’s FpML messaging format and will be used for notifications, including initiations, increases, novations, amendments and terminations. Market participants will be able to receive swaps trades electronically in a consistent format allowing custodians and accounting agents to build solutions that will create STP, says the group.

The regulatory community should welcome this initiative, given its current focus on introducing more standardisation to the OTC derivatives world. Regulators in both Europe and the US are keen to standardise and centrally manage as much of the OTC derivatives transaction flow as possible.

Standards, however, are not an end in themselves. One need only look at the plethora of standards out there and the hodge podge of different systems required to process these messages to appreciate this fact. The ISITC led group is clearly banking on the involvement of as many players in the industry as possible in the drawing up of these standards (it involved 130 group members) to ensure that they are adopted by the majority of the market. ISITC’s OTC Derivatives Working Group is co-chaired by Franklin Templeton Investments and Barclays Global Investors, representing fund managers and Bank of New York Mellon and State Street, representing custodian banks.

In the wider field of standards within the financial services community, ISITC, FIX, Swift and ISDA all announced last year that they would be working together to draw up an “investment roadmap” with a view to increasing interoperability between the different formats in the market. Work on achieving this goal of interoperability has been ticking away in the background, but, since the big announcement pre-Sibos last year, there has not been much in the way of public consultation or PR.

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