FIA Issues Recommendations for Efficient Swap Clearing

The Futures Industry Association ("FIA") released a set of recommendations intended to improve 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 arranged into two sections: swap execution facilities ("SEFs") and derivatives clearing organizations ("DCOs").

FIA suggested that SEFs:

• ensure that a pre-trade limit check is performed on all trades executed on an SEF;
• generate or receive a unique limit token for all screened orders that should be passed on to a DCO;
• send all trade status messages in real time to a futures commission merchant ("FCM");
• verify that transactions submitted to a DCO for clearing are the same transactions that were screened pre-execution by the FCM;
• provide FCMs with the option to execute (either directly or via a hub) hard kill and soft kill switches; and
• allow FCMs to set a parameter for limit reservations, not allow the reservation to roll forward to the following day, and restrict limit reservations to one-time use (an expired token cannot be used).

FIA recommended that DCOs:

• check that FCMs and clients match on an embedded token;
• inform SEFs and FCMs of trade rejections and pass a rejection reason;
• include SEF Trade ID and SEF Name/LEI on end-of-day reports;
• offer impartial access to any post-clearing allocation platform; and
• document policies and procedures relating to the steps taken by the DCO following the registration of a trade which was subsequently acknowledged by the parties as erroneous.

See: FIA Recommendations.