ISDA releases paper on OTC Commodity Derivatives Trade Processing
The document outlines three areas for potential improvement viz. Lifecycle processes, OTC settlement processes, and Settlement matching processes
Banktech India News Network, 4/26/2012 10:39:03 PM
The International Swaps and Derivatives Association (ISDA) has
come out with a paper which discusses best practices for
Over-The-Counter (OTC) Commodity Derivatives Trade Processing.
Titled, OTC Commodity Derivatives Trade Processing Lifecycle
Events, the paper analyzes existing and potential opportunities for
further standardization in the OTC commodity derivatives markets in
order to drive improvements in operational efficiency, reduce
operational risk, and increase netting and clearing for appropriate
products.
In addition to providing a summary of OTC commodity derivatives
markets’ trade processing lifecycle events and an overview of
the current industry state of processing, the paper outlines three
areas for potential improvement viz. Lifecycle processes, OTC
settlement processes, and Settlement matching processes.
“OTC commodity derivatives have been in existence for
centuries, far longer than some of the other OTC derivative asset
classes,” said Julian Day, Head of Market Infrastructure,
ISDA. “The vast majority of OTC commodity derivatives
products have become standardized over time and additional
standardization has occurred with a specific focus on electronic
confirmation, lifecycle event processing and clearing. The
whitepaper further clarifies and increases transparency of the
operational best practices for OTC commodity
derivatives.”
OTC commodity derivatives are transparent (pre and post-trade),
with a significant proportion of transactions centrally cleared,
electronically confirmed and bilaterally collateralized. Across the
OTC commodity derivatives markets, the vast majority of all
contracts are confirmed electronically via confirmation matching
platforms. To date, more than 85 percent of eligible
inter-Commodities Major Dealers (CMD) metals trades and 90 percent
of energy trades are actually confirmed electronically. There is no
material backlog of unexecuted confirmations.
The paper is available on the ISDA website for further
reading.
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