January 20, 2021 will undoubtedly be remembered as the day Joe Biden was sworn in as the 46th president of the US. But another consequential development also took place this week that will help reshape the derivatives market and hasten its journey to a digital future – the launch of a digital ISDA Master Agreement.
This is a vital pillar in our plan to further standardize ISDA’s legal documentation and definitions and make them available in digital formats. It represents a big change for market participants, and change is never easy. But shifting to digital documents will help firms to develop a golden source of legal data that can be used consistently across the organization, supporting automation, driving efficiency and reducing costs.
It has long been ISDA’s core mission to develop industry standards and legal documentation to support safe and efficient use of derivatives, and to update those documents to reflect market events and regulatory changes, from benchmark reform to margin requirements. Making our documentation and other products and services available in digital formats is a further extension of that and reflects developments in technology and increasing demand from derivatives users for greater automation, interconnectivity and efficiency.
From now on, market participants will be able to access a digital version of the ISDA Master Agreement via the ISDA Create platform. Supported by the ISDA Clause Library, a drafting tool that promotes greater standardization of language within ISDA documentation, users will be able to efficiently negotiate the various provisions of the ISDA Master Agreement online and electronically capture key relationship and other legal data for risk management and other purposes.
This will make the negotiation process far more transparent and efficient and less time-consuming – which, given how widely the ISDA Master Agreement is used, could result in attractive resource and cost savings. Importantly, the capture of legal data in a consistent form will enable firms to quickly identify the relationships and provisions affected by market events or regulatory changes without needing to rummage through paper documents and PDFs.
The ISDA Master Agreement and ISDA Clause Library are just the latest in a series of digital releases. Firms are also able to negotiate digital initial margin documentation via ISDA Create, and the platform was expanded last year to incorporate other documents, including an interest rate reform bilateral template package to help with the transition to risk-free rates. On top of that, we plan to make our forthcoming 2021 ISDA Interest Rate Derivatives Definitions available in a digital format.
Probably the most significant aspect to all this is the prospect of delivering a single, golden source of digital data. This will enable information to be accurately and consistently shared with sales and trading, credit and risk and operations departments internally, as well as with market infrastructures, vendors and counterparties. It will also allow updates and amendments to feed seamlessly through to other systems, cutting down on the potential for errors, discrepancies and the need for manual intervention.
Digitization will also make it easier to determine which version of the document or definitions should apply. For example, firms currently have to manually assemble the ISDA definitional booklet plus various supplements, typically in paper or PDF form, in order to determine the terms of each trade at the time of execution – a process that is time consuming and easy to get wrong. In response, the 2021 Definitions will be available on a web versioning platform that will allow users to electronically view a consolidated version of the text that existed at any specified time.
Digitization of the ISDA Master Agreement marks a major step in the delivery of digital documentation, as well as the ability of firms to consistently capture and consume legal data that can be used to inform and support trade management through the lifecycle. Leveraging this innovation will make all our jobs a lot easier, more predictable and much less hassle.
ISDA is holding a virtual conference on Digitizing Legal Documentation and Smart Contracts on January 28. Click here for more details.
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Quantifying the Benefits of Digitization
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