Impetus for Automation

ISDA Chief Executive Officer Scott O'Malia offers informal comments on important OTC derivatives issues in derivatiViews, reflecting ISDA's long-held commitment to making the market safer and more efficient.

The coronavirus outbreak has forced firms to focus on immediate, critical priorities like business continuity, managing risk and supporting customers. However, the remote working and social distancing measures introduced as part of the pandemic response have underscored another issue – the difficulties caused by complex, inefficient and highly manually processes.

With some procedures still involving physical delivery of signed paper documents and notices to office addresses, the current environment of office closures and home working has highlighted the benefits of reducing the number of physical documents in the system. Faced with the practical difficulty of signing and delivering these documents during the coronavirus crisis, it has emphasized the value of automation, and created a strong rationale for digitization of legal documents, online negotiation and execution of agreements, and use of e-signatures.

ISDA has been focusing on these issues for some time to develop mutualized solutions that create efficiencies for the industry. Initiatives such as the Common Domain Model (CDM), ISDA Create and the ISDA Clause Library all respond to the need for greater standardization, automation and digitization across the trade lifecycle – from the agreement of documentation to post-trade processing.

We’re now working on another development that will mark a further important step on the path to greater efficiency – the 2020 ISDA Interest Rate Derivatives Definitions. Set for launch later this year, the new definitions will overhaul ISDA’s flagship interest rate definitions booklet, the 2006 ISDA Definitions, and reflect the many changes to market practice and infrastructure that have occurred over the past 14 years.

Importantly, the 2020 Definitions will be available on a powerful web-based versioning platform that will enable derivatives users to electronically view an always-up-to-date, golden source of the definitions, obviating the need to continually publish separate supplements to reflect changes. The platform will also allow users to automatically see the version of the definitions prevailing at the time of execution of each trade, without having to manually print, compile and review the multiple documents and supplements that were in effect as of that date.

We also intend to eventually make the mechanics of the definitions available in code, enabling firms to easily capture legal data that can be fed through to other trading, operational and risk management systems. This will be aligned with the trade event and process standards established by the CDM, ensuring a consistent approach to managing trades through the derivatives lifecycle and encouraging greater automation.

We believe the 2020 Definitions will mark an important step forward in creating more efficiency in derivatives markets. By making these and other changes, we will set the foundations for a more robust, automated and digital post-trade infrastructure.

A call setting out the aims of the 2020 ISDA Interest Rate Derivatives Definitions is available here.

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