The International Swaps and Derivatives Association (ISDA) has published the paper “The Future of Derivatives Processing and Market Infrastructure” that comes in response to the growing demand from market participants for new solutions to automate and streamline the significant reporting, trading, clearing and collateral management requirements that have emerged as a result of regulatory changes.

The paper identifies three areas where further standardization can be achieved:

  • data – agreement on formats and identifiers would significantly benefit market participants and regulators. In particular, a robust, granular, multi-use product identifier with strong governance based on an open-source infrastructure would remove many systemic inefficiencies and further promote transparency;
  • documentation – despite a plethora of standard documents published for industry use, many documents are still customized between transacting parties. The benefits of this customization are now being questioned. There are opportunities for further standardization and digitization across the suite of existing ISDA documentation, from Master Agreements to definitions booklets and confirmation templates, which will drive more efficient processing and adoption of technology, both within firms and across the market; and
  • process – standard processing models can provide a solid base for further evolution of the derivatives processing environment in order to remove cost and inefficiency. Additionally, the industry would benefit significantly from a holistic review and redesign of collateral management processes to aid compliance with new rules on margining for non-cleared derivatives.

In terms of next steps, ISDA will work to:

  • identify and track solutions to current post-trade inefficiencies by enabling market participants to allocate resources more efficiently and prioritize key issues;
  • develop common domain models by liaising with regulators to identify the earliest possible use cases of those models from both a regulatory and commercial standpoint, as well as how they may be used to support publication of future rules and technical standards;
  • to identify with industry stakeholders a venue that can be tasked with creating an open-source repository for required artefacts. The roadmap for these repositories, roles and responsibilities and basic principles should be agreed and circulated by the end 2016; and
  • explore opportunities to leverage advances in technology. This should provide a coordinated mechanism for solution providers to discuss and identify opportunities (and gaps) with market participants. In addition, this should facilitate synchronized broadcast of events that may have an impact on market participants and infrastructures, and enable the industry to coordinate efficient responses to these events.

View ISDA recommends greater standardisation in derivatives market, 15 September 2016

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