A new industry-led reporting and communication standard for OTC derivatives will give buy-side firms greater scope to automate regulatory-mandated reporting, including splitting margin payments to central counterparties (CCPs).
The clearing connectivity standard (CCS) has been developed by consultancy Sapient Global Markets and the International Swaps and Derivatives Association (ISDA), a trade body, to standardise reporting of payments to CCPs for swaps ahead of a series of US regulatory deadlines throughout the year.
The CCS will include functionality to separate payments for initial margin, variation margin and commissions, which can be grouped together and netted off, or paid separately. This means a buy-side firm with multiple CCP accounts can automate the separation of payments at the account level.
"We wanted to make the standard as flexible as possible, because clients have different needs, all of which must be accommodated in a standardised format," said Phillip Matricardi, senior associate, Sapient Global Markets, talking at an online seminar to introduce the new standard on Thursday.
"The benefits of rolling out the standard are connectivity, netting and recording data for other uses. At this stage we're trying to get the standard embraced and meet the industry's needs and I expect this evolution to continue," Matricardi said.
The core functionality of the standard will be finalised ahead of 10 June, when category two clearing requirements under the Dodd-Frank Act come into force, mandating client clearing.
However, buy-side firms generally are more concerned about the 9 September reporting deadline, which will encompass all financial entities, including pension funds, Judson Baker, senior vice president, derivatives products and strategy for Northern Trust, one of the custodian banks supporting the initiative, told the seminar.
"Realistically the buy-side is more concerned about the September deadline, due to the mandatory clearing for many, many more clients, and asset managers' activities for pension funds," Baker said.
After the June deadline, greater functionality will be built into the standard and its development will shift towards Europe and Asia. The European market infrastructure regulation (EMIR) will likely come into force in the first half of 2014, requiring buy-side firms centrally clear OTC derivatives, a process the CCS aims to simplify.
Already a number of market participants have thrown support behind the standard. In coming months ISDA will meet with Deutsche Börse-owned Eurex and IntercontinentalExchange's clearing business in addition to Asian bourses Singapore Exchange and the Tokyo Stock Exchange, which have signalled they will support the standard.
ISDA supported the development of the CCS in October, after initially progress was made by Sapient Global Markets with several custodian banks and futures commission merchants (FCMs). It was designed to help asset managers, FCMs, CCPs and custodians improve swaps reporting and communication and will be converted to the Financial products Markup Language (FpML) as it develops.