Clearing documentation - CCP

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Futures Commission Merchants

The Futures Industry Association (FIA) and the International Swaps and Derivatives Association, Inc. (ISDA) announced in a statement on August 29 that they had released a document that can be used by U.S. futures commission merchants (FCMs) and their clients to document OTC derivatives trades. The dopcumentation can be accessed here.

The FIA-ISDA Cleared Derivatives Addendum, which is designed to be utilized with futures and options agreements negotiated between a U.S. FCM and its clients, includes what both parties will provide in the trade, including what will be done with customer collateral.

The Addendum also outlines how OTC swaps transactions will be closed out, rules for attaining a valuation of trades that have been terminated and what events will trigger liquidation. The document contains tax laws related to cleared OTC derivatives trades.

“The Addendum is an important milestone that will enable customers in the U.S. to access central clearing of OTC derivatives transactions efficiently through the use of market standard documentation,” ISDA chief executive officer Robert Pickel said in the statement. “It represents the collaborative efforts of a broad cross-section of market participants and marks another step forward."

Moody’s Investors Service recently released a report predicting that the OTC derivatives regulation pushing transactions of these securities into central clearing will increase demand for high-quality government bonds used for collateral in trades.