The ISDA Notices Hub: One Year On

In times of war, armed forces are often required to mobilize over large distances at short notice. The most dreaded response to the question of how they are to be transported is 'by LPC', meaning 'leather personnel carrier' - the humble boot. Remarkably, until this time last year, the delivery of critical derivatives trade termination notices remained dependent on the exact same technology.

Our market is renowned for its emphasis on speed: quant traders move their computers into exchanges to reduce time-to-execution, while trades are marked-to-market and collateral values monitored in real time. Against that backdrop, it seems surreal that once the decision to terminate a trading relationship following an event of default has been made, the only available method of execution has been to deliver a physical notice to the counterparty's office - no matter where that might be - by LPC.

That's why ISDA launched the ISDA Notices Hub on S&P's Counterparty Manager Platform one year ago. It enables instantaneous delivery of termination-related notices regardless of time or distance and provides recipients with an alert when a notice arrives. And because physical delivery of those and other types of notice might still be valuable, it facilitates address updates via a single entry that flows through to the agreements of all counterparties on the platform. Free to buy-side firms, with a protocol that's free to the buy and sell side, and with no systems build required, the adoption process has been designed to be as intuitive and painless as possible.

One year from launch, 179 entities from 71 groups have adhered to the Notices Hub protocol. That includes trading entities from 70% of global dealers, asset managers, pension and insurance companies, supranationals, corporates, central banks and governmental bodies.

Entities that have gone live on the platform have gained potentially vital time advantages versus competitors that continue to rely on physical delivery. Their ability to close out their mark-to-market exposures instantaneously removes value-at-risk exposure and allows them to re-hedge, set-off and enforce against available security ahead of their peers. ISDA estimates that firms could save around $1 million dollars if termination becomes effective on a Friday afternoon rather than a Monday morning, even for a modest portfolio of derivatives with $10 million of initial margin.

The ISDA Notices Hub is already supported by legal opinions for 33 jurisdictions, including all of North America, most of Europe and a high proportion of Asia-Pacific derivatives trading regions. Another 40 jurisdictions are in the pipeline.

Anyone doubting the platform's utility only has to look at the geopolitical events of this year and consider how difficult physical delivery of a notice would have been during the snowstorms that blanketed eastern America this winter or the events that have played out in the Gulf region since February. The ISDA Notices Hub delivers instantaneously, regardless of what is happening on the ground, and brings a critical part of the derivatives lifecycle into the 21^st century.

Visit the ISDA Solutions Hub for more information.