Trading analytics and technology provider Sapient Global Markets has teamed up with Bank of New York Mellon; State Street and Northern Trust along with nine broker-dealers and fund managers to design a standard report for futures commission merchants to communicate margin statements on cleared swap transactions to custodian banks on behalf of their buy-side clients.

"We're trying to eliminate the need for FCMs and custodian banks to interpret and reconcile data in different formats," says Jim Bennett, managing director in New York for Sapient Global Markets.

The report, which relies on a CSV file format, includes all of the elements which should be present in margin statements. Those are account balances, margins, payments, fees, interest, positions, daily trading activity and collateral movements. The information is then interpreted, reconciled and consolidated for reporting by custodian banks which often provide outsourced communications and other post-trade processing work for swaps to their fund manager clients. 

BNY Mellon, State Street, and Northern Trust are among the world's largest custodian and offer clearing related services to fund managers for swap transactions along with other post-trade operations work. They have historically provided these services for listed products, and with the move to central clearing for swap contracts under the Dodd-Frank Wall Street Reform Act, need to add infrastructure to do the same for swaps. The legislation, when finally implemented, will require many swap contracts to be cleared through clearinghouses, which in turn will mandate that FCMs put up collateral. Fund managers are expected to rely heavily on FCMs to clear trades rather than join clearinghouses on their own.

The standardized report Sapient helped develop will initially relate only to credit default swap and interest rate contracts cleared through clearinghouses operated by industry giants LCH.Clearnet and CME Group. Bennett says the industry group hopes to expand the asset classes and number of clearinghouses over the next year. Subsequent versions are also expected to rely on the popular FpML protocol used in the derivatives market, instead of a CSV file format, as part of a planned real-time systems environment.

Written by Chris Kentouris, Editor-in-chief (Chris can be contacted through Chris.Kentouris@hotmail.com)

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