Investment Operations

ISITC Updates Listed Derivatives Processing Guidelines


ISITC’s Derivatives Working Group outlines guidelines for processing negative trading prices on commodity futures

ISITC, the industry trade group focused on developing standards and best practices in financial services operations, has released its latest version of the market practice document, “Listed Derivative Market Practice Guide.”

ISITC’s Derivatives Working Group said it developed the document to help users of the SWIFT network process negative trading prices on commodity futures. The effort was spurred by recent market event disruption caused by the COVID-19 pandemic, headlined by the West Texas Intermediate (WTI) oil benchmark, which traded and settled in negative territory for the first time ever.

Commodity futures are traditionally transmitted from buy-side to custodians via MT54x messages according to SWIFT settlement instructions. Field 90B within the message indicates the traded price but SWIFT standards do not allow for communication of a negative value in this field. According to industry experts, due to the global nature of SWIFT communications, the change management process can be lengthy and tightly controlled. The market practice document outlines an interim solution that firms can use when special processing is needed to avoid posting a negative traded price trade as a positive.

“After the events of April 20, the Settlements and Derivatives working groups quickly organized around a market practice update as an interim solution,” said Brian Manning, Co-Chair of ISITC Derivatives Working Group. “Our membership’s diverse set of skills and subject matter expertise gave us a broader lens to help address this issue. As efforts continue for a long-term solution, ISITC continues to champion the SWIFT messaging standards,” Manning added.

After the Derivatives Working Group held frequent calls to discuss the initiative ISITC’s Listed Derivative U.S. Market Practice Guide v3.2 was released in April 2020. The full guide can be viewed here.