Seeking Future Leaders to Explore Collateral and Liquidity

ISDA Chief Executive Officer Scott O'Malia offers informal comments on important OTC derivatives issues in derivatiViews, reflecting ISDA's long-held commitment to making the market safer and more efficient.

The transition to central clearing and margining for non-cleared derivatives has gone a long way to mitigating counterparty credit risk, by requiring a huge volume of collateral to be exchanged between parties. But managing the timely and efficient flow of this collateral through the system on a daily basis is an ongoing challenge. As recent stress events have shown, delays and inefficiencies in sourcing and posting collateral can quickly lead to an escalation of liquidity risk. ISDA has been working hard to standardize data and bring greater automation to collateral management, and we’re now looking to the industry’s rising stars to contribute fresh ideas to address this challenge.

Now entering its fourth year, the ISDA Future Leaders in Derivatives (IFLD) program is an exceptional opportunity for derivatives market professionals to engage with peers and stakeholders on an important industry issue and contribute their own perspectives on the way forward. Our most recent cohort published a terrific paper on generative artificial intelligence earlier this year, setting out a series of possible use cases in the derivatives market and addressing regulatory issues and other challenges.

We recently called for nominations for our next group of future leaders, who will join the program later this year. They will get straight to work exploring the policy and operational aspects of collateral management, and what market participants and infrastructure providers need to do to make sure collateral gets to where it needs to be, when it needs to be there. This topic calls for a wide range of perspectives and professional expertise, spanning operations, risk management, technology, policy and legal, so we’ll be looking to convene a group that can bring that diversity of thought. Participants will be supported by ISDA’s staff and given access to subject matter experts, but the whitepaper will be their own work – an opportunity to make a unique contribution to a critical industry issue.

The IFLD paper will complement ISDA’s own collateral initiatives, which have been gathering momentum this year. Leveraging our suggested operational practices for collateral management and the Common Domain Model (CDM), a free-to-use data standard for financial products, trades and lifecycle events, we’ve developed resources that support automated workflows and data standardization to reduce operational, liquidity and counterparty risks. We recently announced that VERMEG, a technology provider for the banking and insurance sector, has integrated the CDM into its COLLINE collateral management system to support the consumption of digitized regulatory initial margin credit support annexes. Several other firms are testing the application of the CDM to collateral representation, margin and settlement processes, margin call issuance and response messages, and cash collateral interest processing.

As ISDA continues to work with market participants to realize the benefits of our collateral initiatives, it’s a great time for the IFLD to take stock of what has been achieved and the challenges ahead, helping us to map out the future. If this sounds like an opportunity for you or one of your colleagues, please do consider applying. I’m looking forward to meeting our next group of future leaders when they get started later this year.

The deadline for applications for the IFLD is July 26 and the program will begin on October 9. For more information about the application process, download the call for nominations or contact IFLD@isda.org.

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