This paper analyses existing and potential opportunities for further standardisation 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.
The paper also provides a summary of OTC commodity derivatives markets’ trade processing lifecycle events and an overview of the current industry state of processing.
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 standardised over time and additional standardisation has occurred with a specific focus on electronic confirmation, lifecycle event processing and clearing. The white paper 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 collateralised. Across the OTC commodity derivatives markets, the vast majority of all contracts are confirmed electronically via confirmation matching platforms. To date, more than 85 per cent of eligible inter-Commodities Major Dealers (CMD) metals trades and 90 per cent of energy trades are actually confirmed electronically. There is no material backlog of unexecuted confirmations.
The paper outlines three areas for potential improvement:
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lifecycle processes;
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OTC settlement processes; and
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settlement matching processes.
Full paper
© ISDA - International Swaps and Derivatives Association
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