FMSB Spotlight Review on Uncleared Margin for OTC Derivatives

The Financial Markets Standards Board (FMSB) has published a spotlight review on ways to improve uncleared margin for OTC derivatives, along with a press release. It builds on findings from the Bank of England's Post-Trade Task Force, which highlighted multiple inefficiencies in its report 'Charting the Future of Post-Trade' published in April 2022. This review specifically focused on uncleared margin practices for bilaterally negotiated over-the-counter (OTC) traded derivatives, where clearing and settlement is also carried out noncentrally between the two parties. The working group generally agreed on the drivers of inefficiencies, but there were differences of opinion on the scale of these problems, and their potential solutions and viability. It conducted a survey to draw out the extent of agreement on a range of problems and their potential solutions to emphasise the specific topics which the industry may have the most success in taking forward in the future. The spotlight review summarises the findings of the survey and sets out key recommendations for improvements which are grouped in two categories: (i) enhancements that are actionable individually, with improvements that can be unilaterally implemented immediately by firms; and (ii) enhancements that require holistic market acceptance and adoption to be effective. This review also emphasised the desire of all firms for further market standardisation, with the working group supporting recent initiatives and priorities of ISDA, including ISDA SIMM, ISDA's Portfolio Reconciliation and Collateral Management Suggested Operational Practices and the Common Domain Model for margin and collateral management use. However, given the bespoke nature of the OTC market, the working group recognises that there is a natural limit to standardisation.

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