Today, May 23, marks exactly 40 years since ISDA, initially known as the International Swap Dealers Association, was first established by a small group of mostly New-York-based dealers. At ISDA’s Annual General Meeting (AGM) in Amsterdam last week, we had the opportunity to celebrate ISDA’s achievements over the past four decades and to hear from some of the early pioneers. It’s truly been a remarkable journey, but we’re not dwelling on the past – we’re thinking hard about the future and the role ISDA will play in the continued evolution of derivatives markets.

The world is changing in ways we might not previously have expected. We’ve seen a retreat from globalization and a move towards self-sufficiency and protectionism in many countries. These are big changes, and we need to think carefully about how they might impact financial markets and the regulatory framework. One thing is clear: recent market volatility, sharp price moves and ongoing uncertainty have drummed home the crucial role that derivatives play in allowing firms to transfer risk, smooth out the impact of volatility and bring a greater degree of certainty to financial planning. As ISDA’s recent report on the value of derivatives and our latest whiteboard animation show, these instruments help firms stay focused on long-term strategic goals – even when the world around them is anything but predictable.

However, the structure and composition of the market is undoubtedly changing. The non-bank financial intermediation (NBFI) sector now plays a significant role in providing funding to the real economy, representing nearly half of global financial assets, according to estimates by the Financial Stability Board. Regulators have been looking closely at this sector, with a focus on margin practices, transparency and leverage. It’s important to remember that NBFI includes a wide range of entities, from pension funds to private equity firms. Given this diversity, a one-size-fits-all approach to regulatory oversight is unlikely to work.

Take the pensions sector as an example. Demographic shifts mean assets under management have been growing rapidly in some countries, resulting in increased derivatives use – a trend that’s likely to continue. In Australia, superannuation funds are adapting to greater regulatory scrutiny as their investment portfolios grow, along with requirements on operational risk management, governance, reporting and margining – issues we explore in an ISDA paper we published earlier this week.

Margining isn’t just an issue for pension funds, and it’s long been a focus for ISDA. We’ve taken practical measures to improve the margin process for all our members, including shifting the ISDA Standard Initial Margin Model to semiannual calibration and pushing to make collateral management more automated and less dependent on manual work. We’re now thinking about how tokenization could bring improvements to the management of collateral. This was one of the topics explored by the current cohort of the ISDA Futures Leaders in Derivatives program, which published a paper on collateral and liquidity efficiency in the derivatives market last week. We’re grateful to the IFLD cohort for bringing a fresh perspective to this critical issue, with a terrific set of recommendations to bring about positive, lasting change.

Tokenization is one area where technology could influence how derivatives markets function. Artificial intelligence (AI) is another, and we’re thinking about what role it could play in the derivatives markets of the future. There’s no doubt AI has transformative potential if applied to certain processes, including trading, risk management, regulation and documentation. Last week, we published a benchmarking study that shows how generative AI can be used to extract, interpret and digitize key clauses from our credit support annexes. By transforming this information into a standardized format, we can reduce the heavy resource requirements and potential for errors that come with traditional data extraction.

This is just a taste of the opportunities we’re considering as we look beyond ISDA’s 40^th anniversary to the future of the derivatives market. ISDA has come a very long way since 1985, but, in many ways, we’re just getting started. I’m grateful to everyone who joined us in Amsterdam to make the AGM such a success, and I’m looking forward to working with our members around the world as we begin to chart ISDA’s fifth decade with clarity, determination and focus.