The International Swaps and Derivatives Association (ISDA)
has published a whitepaper calling for greater standardisation and automation
of derivatives market infrastructures.
The new paper, The Future of Derivatives Processing and
Market Infrastructure, highlights a number of challenges with existing
structures and processes, and recommends several steps the derivatives industry
can take to create efficiencies – in particular, by embracing opportunities for
“The derivatives industry has become
reliant on legacy infrastructures and processes that have been layered on top
of each other over time. That might be the result of historical acquisitions,
where the respective systems haven’t been fully integrated. More recently, the
sheer pace of regulatory change has meant firms have been under pressure to
tackle the next pressing deadline. The result is a derivatives infrastructure
that is duplicative and based on incompatible operating standards, and this
isn’t sustainable,” says Scott O’Malia, CEO of ISDA.
He continued: “Our
members are looking for more effective, less costly and less complex processes,
using technology where possible to cut down on manual processes. ISDA is
helping to respond to these issues, and our whitepaper highlights a number of
areas where the association can work with the industry and regulators to
improve trade processing through the lifecycle.”
paper highlights three areas where ISDA believes that further standardisation
can be achieved: documentation, data and processes.
ISDA has previously worked to develop and
promote standard documentation, including the ISDA Master Agreement and the
Credit Support Annex (CSA) to standard definitions and confirmation templates.
These documents have
typically allowed counterparties to negotiate various terms to reflect their
differing needs and preferences, but the whitepaper recommends further
standardisation to reduce complexity and operational challenges.
The paper also looks at opportunities to
transform ISDA’s legal documentation by developing ‘smart contracts’ that can
automatically execute intended lifecycle events using distributed ledger
The whitepaper further recommends the adoption
of a standard, multi-use derivatives product identifier as a key requirement
for reducing duplication and inconsistency.
ISDA also calls on the industry to collaborate
to agree on standards, processes and data elements for certain common
processing tasks. As a first step, ISDA says that it will draw up a development
plan for the creation of these common domain models, and will work with
regulators and the industry to identify and prioritise use cases.
“As implementation of
global regulation continues, the challenges for the industry are numerous. New
technologies are available to help provide solutions, and market participants
should take the opportunity to consider and embrace these technologies where
appropriate. These should draw on the experience of market participants and how
the market does or should operate, without stifling innovation,” the report
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