The ISDA Collateral Infrastructure Committee in its remit to monitor issues and challenges related to the OTC collateral process has identified a gap as it pertains to the current margin call process. As many counterparties continue to move towards an electronic form of margin call matching and processing, there remains a consistent population of counterparties who do not subscribe to an electronic form of margin call messaging, which prevent true
STP in the overall collateral process.
To that end the ISDA 1CIC (Collateral Infrastructure Committee) has agreed to and is proposing a Best Practice for the issuance and response to margin calls in a standard manner to assist firms not currently using an electronic margin call matching platform.
As part of developing a standard form for Margin Call Issuance and Response the ISDA CIC examined the minimum set of fields which is required today to communicate the issuance of a margin call, as well as the expected response of a margin call. The process to reach the agreement on the templates was developed through thorough committee analysis, discussion and debates in order to reach an industry consensus.
The margin call templates presented as part of this Best Practice document include a standard form for an Outgoing Call and Call Response which consist of fields that are categorized as either required as part of the template or optional. It also includes definitions of each field as well as examples of different call data. It should be noted that this Best Practice serves a segment of the OTC market that does not utilize any form of electronic automated margin call processing to further promote efficiency and a straight through process (STP) model.
The ISDA CIC recommends this Best Practice to be used not as a replacement for current best practices but as an enhancement of them. The harmonization of practice between practitioners serves to mitigate risks inherent in the collateral management process and also sets expectations and standards for new entrants to the OTC derivative market.