How do you define and measure collateral dispute resolution time?

1 Define collateral dispute resolution time

Collateral dispute resolution time is the duration between the identification of a collateral dispute and its final resolution. It can be measured in different ways, depending on the data sources and the level of detail available. For example, you can use the date and time stamps of the initial and final margin calls, the dispute notifications, the settlement confirmations, or the dispute reports. You can also measure the resolution time by the number of business days, calendar days, or hours. The choice of measurement method should be consistent, transparent, and agreed by both parties.

2 Identify the sources and causes of disputes

The sources and causes of disputes can differ significantly, depending on the type, complexity, and frequency of the transactions involved. Common sources and causes of disputes include data mismatches, like discrepancies in trade details or collateral schedules; operational errors, such as delays or inaccuracies in the margin call process; legal issues, such as disagreements over the interpretation or enforceability of agreements; and market events, such as volatility or liquidity shocks that affect the value or eligibility of collateral assets.

3 Implement a dispute management framework

A dispute management framework is a set of policies, procedures, and tools that aim to prevent, detect, escalate, and resolve collateral disputes in a timely and efficient manner. It should include clear and consistent definitions and rules for identifying, categorizing, and reporting disputes, as well as a dedicated and trained dispute resolution team responsible for monitoring, tracking, and resolving disputes. Additionally, a regular and structured communication and escalation process between the counterparties and the relevant internal and external stakeholders is essential. A robust and flexible dispute resolution process that allows for different methods and levels of intervention, such as bilateral negotiation or arbitration should be included. Finally, a comprehensive and accurate dispute database that records and analyzes the dispute data should be established.

4 Adopt best practices and standards

Best practices and standards are guidelines and recommendations that aim to improve the quality, efficiency, and consistency of the collateral management process and reduce the likelihood and impact of collateral disputes. For example, one should align their collateral agreements and operational processes with industry standards such as the ISDA Master Agreement, the ISDA Credit Support Annex, the ISDA SIMM, or the ISDA Collateral Best Practices. Automating and streamlining the margin call process, the collateral allocation process, and the settlement process using technology solutions is also encouraged. Additionally, enhancing data quality and transparency through reliable sources, validation checks, reconciliation tools, or reporting services is recommended. Finally, it is important to review and update collateral agreements and operational processes regularly in order to reflect any changes in market conditions, regulatory requirements, or business needs.

5 Monitor and evaluate the dispute resolution performance

Monitoring and evaluating the dispute resolution performance is a key step to identify the strengths and weaknesses of the dispute management framework, and to implement corrective actions or improvements as needed. To do so, you should establish and track key performance indicators (KPIs), conduct root cause analysis (RCA), perform benchmarking analysis, and solicit feedback from counterparties and stakeholders. This will help you understand the number, value, duration, source, cause, and outcome of disputes, as well as the dispute resolution rate, time, cost, or satisfaction. You can also compare your performance with industry standards and best practices to identify gaps or opportunities for improvement.