ISDA CDM to promote transparency and alignment between regulators and market
20 June 2019 Madrid
Image: Shutterstock
The International Swaps and Derivatives Association (ISDA) Common Domain Model (CDM) 2.0 will promote transparency and alignment between regulators and market participants, which Ian Sloyan, director of market infrastructure and technology at ISDA, suggests is “one of the most exciting and useful cases on the horizon”.
Speaking at the International Securities Lending Association Conference in Madrid, Sloyan discussed what ISDA is currently working on and how it will help the industry to standardise.
Sloyan said: “The effort to try and standardise things is foundational to transforming our markets and move forward.”
The ISDA CDM looks to marry the standard legal language/standard legal clauses and build standard representations of not only the data that exists today, but adding on to continuous standardisation and processing of that data, according to Sloyan.
He said: “As we go through the life of a transaction we should have certainty that what I see is what my counterparty sees overtime and there are various tools that we are using that will help the industry to implement that chronological process of steps in the right way so there is true alignment throughout.”
However, he noted that “we don’t want to strain the implementations and use of the CDM going forward.”
To avoid any strain on implementation, Sloyan said that ISDA is planning to publish the CDM in as many languages as possible to allow components to be used consistently in all implementations, as well as providing ISDA documentation library in many digital formants. The association will also provide access to resources and reference data via application programming interfaces.
Sloyan explained: “If we don’t do that we run the risk of fragmenting the market in the same way that it is fragmented today.”
He added: “We are looking to deliver a machine-readable and machine executable data model for derivatives products, processes and calculations. However, it is deliverable across other markets other than the derivative space.”
Sloyan also noted that the CDM will help reduce costs associated with current manual processes especially in trade affirmation and trade management, collateral management, regulatory reporting, reconciliations, exercises and settlements, portfolio compression, novation and transfers.
He said: “It also enables interoperability between systems and services which removes the burden of setting up connections to different systems laying groundwork for straight-through processing, as well as promoting transparency and alignment between regulators and market participants, which I believe is one of the most exciting and useful cases on the horizon.”
“It will also speed up the development of new solutions for the market by allowing providers to focus on what they specialise in—the technology—rather than requiring them to interpret and represent market events and processes individually.”
According to Sloyan, the resulting technology solution will also be interoperable with other offerings which are using ISDA CDM.
Sloyan also revealed that ISDA also plans to implement a CDM for the repo and securities finance industry by the end of this year.
Other plans included a full model for data and processes within collateral agreements, which will integrate the ISDA CDM with the ISDA Create and other collateral services; an expansion in product scope to cover forwards and the foreign exchange asset class, equity asset class, securities for collateral exchange and financing transactions, and basic commodity products; further integration of ISDA CDM with technology providers working on solutions for financial markets; and the implementation of other reporting rules to demonstrate the power of ISDA CDM to improve data quality and remove interpretation risk in regulatory implementations.
Speaking at the International Securities Lending Association Conference in Madrid, Sloyan discussed what ISDA is currently working on and how it will help the industry to standardise.
Sloyan said: “The effort to try and standardise things is foundational to transforming our markets and move forward.”
The ISDA CDM looks to marry the standard legal language/standard legal clauses and build standard representations of not only the data that exists today, but adding on to continuous standardisation and processing of that data, according to Sloyan.
He said: “As we go through the life of a transaction we should have certainty that what I see is what my counterparty sees overtime and there are various tools that we are using that will help the industry to implement that chronological process of steps in the right way so there is true alignment throughout.”
However, he noted that “we don’t want to strain the implementations and use of the CDM going forward.”
To avoid any strain on implementation, Sloyan said that ISDA is planning to publish the CDM in as many languages as possible to allow components to be used consistently in all implementations, as well as providing ISDA documentation library in many digital formants. The association will also provide access to resources and reference data via application programming interfaces.
Sloyan explained: “If we don’t do that we run the risk of fragmenting the market in the same way that it is fragmented today.”
He added: “We are looking to deliver a machine-readable and machine executable data model for derivatives products, processes and calculations. However, it is deliverable across other markets other than the derivative space.”
Sloyan also noted that the CDM will help reduce costs associated with current manual processes especially in trade affirmation and trade management, collateral management, regulatory reporting, reconciliations, exercises and settlements, portfolio compression, novation and transfers.
He said: “It also enables interoperability between systems and services which removes the burden of setting up connections to different systems laying groundwork for straight-through processing, as well as promoting transparency and alignment between regulators and market participants, which I believe is one of the most exciting and useful cases on the horizon.”
“It will also speed up the development of new solutions for the market by allowing providers to focus on what they specialise in—the technology—rather than requiring them to interpret and represent market events and processes individually.”
According to Sloyan, the resulting technology solution will also be interoperable with other offerings which are using ISDA CDM.
Sloyan also revealed that ISDA also plans to implement a CDM for the repo and securities finance industry by the end of this year.
Other plans included a full model for data and processes within collateral agreements, which will integrate the ISDA CDM with the ISDA Create and other collateral services; an expansion in product scope to cover forwards and the foreign exchange asset class, equity asset class, securities for collateral exchange and financing transactions, and basic commodity products; further integration of ISDA CDM with technology providers working on solutions for financial markets; and the implementation of other reporting rules to demonstrate the power of ISDA CDM to improve data quality and remove interpretation risk in regulatory implementations.
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