ISDA Reflects on 14-Years of IRD Developments with ISDA CDM Set to Enchance Standardisation of Derivatives Trade Processing

ISDA (International Swaps and Derivatives Association) released an informal comment on the 28th May highlighting their long-term commitment to making the derivatives markets safer and more efficient. Scott O’Malia (ISDA CEO) noted several key changes in relation to the ISDA 2006 Definitions[1] and progress of the ISDA CDM (Common Domain Model) for the derivatives market.

ISDA announced that they have been in the process of updating the ISDA 2006 Definitions through a web-based version, which can be actively amended, providing a full comprehensive view of the most up-to-date definitions to users. The amendment is due to be rolled-out this year.

More importantly, is how ISDA is looking to structure the new ‘2020 ISDA IRD Definitions’ to ensure they are not misinterpreted and subsequently easily ingestible into a computational framework (i.e. via a specific mathematical formula instead of legal narrative). ISDA have stated that these definitions will be aligned to the ISDA CDM which provides the blueprint for how derivatives trade events can be analysed in a common structure so that there is interoperability between regulators, exchanges, clearing houses, clients and other key market participants.

The ISDA CDM was first announced in October 2017 as a method to standardize the end-to-end post trade lifecycle, delivering more transparent regulatory oversight between regulators and market participants. The project is aimed to be ‘platform agnostic’ which means it can be integrated into any technology, however likely be primarily aimed at evolving DLT (Distributed Ledger Technologies) which banks, CCPs (Central Counterparties) and other market participants are already in the process of adopting.

The current derivatives infrastructure is hugely inefficient and costly, and there’s virtually no way to implement scalable automated solutions because each firm and platform uses its own unique set of representations for events and processes. The ISDA CDM will change all of that. By creating a standard representation for events and products, we will enable firms to develop automated solutions that can be interoperable and scalable in a way that has never been done before.” Scott O’Malia, ISDA CEO.

While the ISDA CDM promotes higher efficiencies and cost reductions for market participants, the sentiment is somewhat split, with mixed views on this ambitious standardisation project. However, with an increasing number of banks and CCPs adopting DLT the implementation of the ISDA CDM could be hastened.

One of the key advantages of the ISDA CDM is the breakaway from delivering standards as document narrative into code, which will be easier to implement and manage across multiple market participants. An ISDA CDM presentation given to the CFTC (Commodities Futures Trading Association) in February 2020, provides a comprehensive overview of the different business cases for market participants.

For more information:

[1] The purpose of the 2006 Definitions is to provide the basic framework for the documentation of privately negotiated interest rate and currency derivative transactions. Although the 2006 Definitions were drafted with this purpose in mind, ISDA recognizes that parties documenting other types of privately negotiated derivative transactions might find it helpful to incorporate the 2006 Definitions into Confirmations for those transactions. (