ISDA Seeks to Establish Digitalisation Framework

The International Swaps and Derivatives Association (ISDA) has published a conceptual version of its ISDA Common Domain Model (CDM), which sets out the required elements to achieve a single digital representation of trade events and actions – something it says is “an important precursor to realise the full potential of new technologies, such as distributed ledger and smart contracts”.

When fully developed, ISDA says the CDM will provide an industry standard blueprint for how derivatives are traded and managed across the lifecycle, and how each step in the process should be represented. Establishing a common set of data and processing standards that all participants can access and deploy will facilitate interoperability between firms and technology platforms.

The Association says that the CDM will provide a common foundation for new technologies like distributed ledger and smart contracts to facilitate consistency and interoperability and reduce the current need for continual reconciliations to address mismatches caused by variations in how each firm records trade lifecycle events. It will also enable consistency in regulatory compliance and reporting.

“Current infrastructures are old, complex and duplicative, and are heavily reliant on manual intervention and reconciliation,” says Scott O’Malia,chief executive of ISDA. “At the same time, banks are facing increased capital requirements, high costs and pressure on profitability.

“New technologies offer significant opportunities to increase automation and create efficiencies, but automating a single business or function isn’t enough,” he continues. “Likewise, unilateral development of bespoke technologies will inevitably lead to the same disjointed and fragmented market infrastructure that we see today. In order to unlock the value presented by new technologies, we need a common set of representations that cover the full range of trade events, which can then be applied by these technologies.”

Version 1.0 of the CDM is a conceptual document, developed in conjunction with ISDA’s members. ISDA will also shortly issue a request for quote for firms to create a digital version of the CDM, which will be developed after industry feedback on the concept document. 

In parallel, the Association says it is working with legal and academic experts to analyse the legal and governance issues relating to smart contracts and distributed ledger. That includes exploring how the ISDA definitions booklets can be enhanced to support further trade automation.

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Colin Lambert

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