Quantifying the Benefits of Digitization

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.

One of the consistent themes that emerged from ISDA’s 37th Annual General Meeting (AGM) in Chicago this month was the need to realize greater efficiencies through digitization. From derivatives documentation to regulatory reporting and collateral management, speakers concurred on the huge benefits of standardizing documentation and automating key processes. But without actually quantifying those benefits, it can be difficult to make the case for investing in digitization. We’ve sought to address this with new research that provides a rare insight into the true value of the digital approach.

Recognizing the costs and risks that arise from manual drafting and negotiation of key documents, we’ve been working to bring the benefits of digitization and automation to this area for several years. To that end, we developed MyLibrary, which now hosts more than 85 flagship derivatives documents, as well as ISDA Create, which is powered by Linklaters’ CreateiQ platform and is used by more than 300 firms around the world to negotiate documents online. By enabling firms to digitally generate, negotiate and execute documentation and then automate the capture, process and storage of data from those negotiations, ISDA Create alleviates the resource drain of manual negotiation.

In a new ISDA paper on digitized document negotiation, we compared a traditional paper-based process for negotiating documentation to an automated process using ISDA Create. The paper sets out a number of case studies, and the results speak for themselves. Depending on the type of document being processed, ISDA Create can yield time savings of 50-70%. In the case of account control agreements (ACAs), which have been a critical part of the documentation required to meet regulatory initial margin requirements, CreateiQ saved firms roughly 30 minutes for each ACA fully negotiated on the platform, amounting to the equivalent of 157 business days as it processed thousands of ACAs ahead of the phase-six deadline in September 2022.

Valuable as this time saving may be, the benefits of digitization and automation extend much further. Digital negotiation allows firms to reduce the endless inefficiencies and risks associated with sending documents back and forth by email, with manual updates that may be incomplete, inaccurately represented or wrongly interpreted. The potential for errors is dramatically reduced by using ISDA Create. Once a document is finalized, the important legal data captured during the negotiation process can be automatically captured and fed into internal systems, eliminating the risks of manually extracting and transferring critical data.

We hope the provision of data that shows the value of digital negotiation will help firms to make progress in this area, but we recognize that this will be a long-term change. As several speakers at the ISDA AGM noted, this is a cultural shift for many firms and it may take time for the full benefits to be realized. We will continue to work with participants across the derivatives market to make sure the value of digitization and automation is fully understood and to help them move forward on the digital journey.

Read ISDA’s paper: ISDA Create – Unlocking Efficiencies and Savings: Digitized Legal Documentation Negotiation

Catch up on the ISDA AGM with the latest edition of IQ magazine – Better Together

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