Free of Payment Cash Collateral - Reporting Legs of Trade Settling Independently

Status: Best Practice Finalised, Last Updated: 26/04/2021

Question:
For free of payment (FOP), cash collateralised SFTs, how should these be reported where the collateral and the security settle on different settlement dates?

Best Practice:
There a potential reporting nuance with regards to a free-of-payment, cash collateralised SFTs. It is entirely possible for the security and cash legs to be returned or settled independently and on different days; in which case, would users expect the ETRM to only be sent once both legs have settled or should they expect to report a MODI to zero, followed by an ETRM?

In the following examples where counterparts transact a FOP cash-collateral trade, two separate reports would need to be sent for each:

1) If the security is partially returned by the borrower on day (x), and the cash collateral remains in custody of the lender and is not partially refunded until the following day (y), or

2) If the security is fully returned by the borrower on day (x), and the cash collateral remains in custody of the lender and is not fully refunded until the following day (y).

Example 1

Send a MODI template message with Field 2.03 (Event Date) equal to day (x), reduce Field 2.83 (Collateral Quantity or Nominal Amount) to the remaining partial quantity and leave Field 2.76 (Cash Collateral Amount) as it is with the full cash collateral amount value.

Send a MODI template message with Field 2.03 (Event Date) equal to day (y), leave Field 2.83 (Collateral Quantity or Nominal Amount) as it is and reduce Field 2.76 (Cash Collateral Amount) as to the remaining partial cash collateral amount value.

Example 2

Send a MODI template message with Field 2.03 (Event Date) equal to day (x), reduce Field 2.83 (Collateral Quantity or Nominal Amount) to zero and leave Field 2.76 (Cash Collateral Amount) as it is with the full cash collateral amount value.