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.

Having people put their heads together is often the best way to come up with big ideas and get things done. That’s why ISDA has joined up with seven other trade associations to lead the push to transform our industry and create an automated, interconnected infrastructure fit for the 21st century. We and our partner associations are committed to a digital future for financial markets, and in a letter to policy-makers yesterday, we set out a series of principles and objectives we think are necessary to drive this change.

These principles are intended to usher in a new era of automation, innovation and lower costs. By doing so, we aim to tackle the inefficiencies that currently exist, resulting from a prevalence of customized, paper-based legal documentation, a lack of commonality in how firms represent trade events and processes, and inconsistent reporting requirements. That has led to fragmented and complex operational processes that are error-strewn, prone to disputes and expensive. New regulations have brought some of these issues to the fore, adding to the demands put upon already ageing systems.

Many firms have been looking to new technologies to bring greater efficiency to their business – a task made more urgent by the coronavirus pandemic, which highlighted challenges associated with the existing infrastructure and the reliance on paper documents and notices. However, scalable and interoperable automation is only achievable with the development and adoption of industry wide standards, and the ability of those standards to be adopted broadly, consistently and in digital form.

Our joint commitment letter focuses on three core areas: standardization, digitization and distribution. In order to realize greater standardization, we will support the development of common, interoperable industry standard models, promote greater alignment of regulatory and data standards, and develop standardized and simplified legal documentation. We will also explore the possibility of making that documentation available in digital formats and support the development of legal agreement data models to ensure contractual terms connect seamlessly with the systems and processes designed to implement them.

Having developed standards and made them available in digital form, it’s important that market participants can easily access them and they remain fit for purpose. As a result, we commit to distribute new standards on an industry wide, commercially reasonable basis where possible, and to establish inclusive governance frameworks to oversee the development, operation and maintenance of any mutualized technology standard.

The announcement earlier this week that ISDA and the International Securities Lending Association have agreed to closer cooperation on digital initiatives shows we’re taking these commitments seriously. Under the agreement, our two associations will collaborate to expand electronic contract opinions and to apply the Common Domain Model to help facilitate greater automation in the derivatives and securities lending markets.

We recognize that none of this is going to happen overnight – it will take time for firms to transform legacy infrastructure. But moving to a digital future comes with very real benefits, including reduced complexity, less need for manual intervention and lower operating costs. Adoption of common data and process standards and increased digitization will also improve the consistency and speed of regulatory reporting and supervision and enhance risk management within firms.

Putting this into practice will require a joint effort between market participants and regulators. As trade associations, we are ideally placed to bring all stakeholders together to develop a consensus – a role ISDA has played for more than 30 years. With our more than 925 member firms across 75 countries, and those of our partner associations, we will strive to lead this transformation.

Our joint letter is an important step in setting key objectives. By working with other committed partners, we hope to foster an environment of technological innovation and build safer, more efficient financial markets.



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