FIA Makes Swap-Clearing Recommendations

Terry Flanagan

The Futures Industry Association has issued recommendations aimed at improving important operational elements of the new clearing infrastructure for over-the-counter derivatives. The recommendations, which were developed by FIA’s Clearing Swaps Operations Committee, are designed to address inefficiencies in the cleared swaps infrastructure, encourage standardization of trade records, and assist clearing firms in managing limit screening in real-time.

“Since the passage of Dodd-Frank, our industry has worked extraordinarily hard to build a new infrastructure for the central clearing of OTC derivatives,” said Walt Lukken, president and chief executive officer, FIA, in a release. “The challenge before us now is to bring down the operational costs of trading and clearing swaps so that more clients can benefit from this new market infrastructure.”

Recommendations for swap execution facilities include improving processes related to limit screening, enriching trade status messages, standardizing content of trade records, implementing kill switches, and developing bunched order allocation tools.

Recommendations for derivatives clearing organizations include implementing processes that would assist clearing members with limit screening, enriching clearing status information and bunched order allocations, and standardizing trade data.

SEFs should ensure that a pre-­trade limit check is performed on all trades executed on the SEF, and this control feature should capture both FCM and DCO checks. SEFs should also generate or receive a unique limit token for all screened orders, and should ensure that this limit token is passed to the DCO as well as the FCM, according to the FIA.

The FIA Cleared Swaps Operations Committee was formed to address a better understanding of the clearing members’ role in the cleared swaps market and identify and offer potential solutions for inefficiencies in the new cleared swaps market infrastructure.

The committee developed the recommendations through discussions among a wide range of market participants, including swap execution facilities, clearinghouses, credit hubs and affirmation platforms. The committee expects to work with other industry groups and individual firms to encourage wider adoption.

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