On 29 November 2013, ISDA published its standard FOA/ISDA Clearing Member Disclosure Document, a document which facilitates clearing members’ compliance with certain obligations under Article 39(7) of EMIR to:
- offer clients a choice between individual client accounts or omnibus client accounts;
- publicly disclose the levels of protection and costs associated with different levels of segregation; and
- describe the main legal implications of different levels of segregation.
The document is divided into a number of parts:
- Part One A: provides background to clearing, addressing issues such as margin posting and porting;
- Part One B: gives information about the difference between individual client accounts and omnibus client account, explains how this impacts on the clearing process and details some of the other factors that might affect the level of client margin protection, such as title transfer versus security interest;
- Part One C: sets out some of the main insolvency considerations under English law; and
- Part Two: provides an overview of the main variations on the different levels of segregation that CCPs currently offer.
At 25 pages, the Disclosure Document is a rather long. In addition, it is not suitable for use with respect to indirect clearing arrangements. Moreover, it appears as if buy-side views on the document have not yet been obtained, raising the prospect that it may be subject to further change. Nonetheless, it is refreshingly well drafted and easy to understand. To that extent, it represents a good template to assist clearing members, which are required under EMIR to obtain client confirmation in writing as to account choices and methods for dealing with excess margin, with their compliance efforts in this area.