ISDA proposes greater collaboration between derivatives and SFT markets
06 October 2020 New York
Image: Panumas
The International Swaps and Derivatives Association (ISDA) has identified opportunities for greater collaboration between derivatives and securities financing transaction (SFT) markets and has set out a proposal for how this could be achieved.
In a new whitepaper, the US trade body explains how and why two large, important and interconnected markets – derivatives and SFTs – could achieve greater standardisation and improved efficiency.
The paper also sets out how the ISDA Master Agreement, which is currently used in over-the-counter derivative transactions, could be expanded to cover SFTs.
ISDA believes an important opportunity exists to further expand these efforts.
The key elements that ISDA has highlighted to achieve this would be developing common legal definitions across the derivatives and SFT markets, documenting derivatives and SFTs under a common master agreement and procuring one set of legal opinions in jurisdictions around the world.
ISDA also notes that implementing consistent solutions across the derivatives and SFT markets will enable market participants to more seamlessly adapt and migrate when key changes (such as the interbank offered rate transition) occur.
The association also emphasises the importance of facilitating the digitisation of the derivatives and SFT markets, in terms of both negotiating and documenting trades and developing a consistent trade record for confirmations and reporting, with standardised trade content and formats.
Scott O’Malia, CEO of ISDA, comments: “Closer collaboration and standardisation between derivatives and SFT markets would bring significant efficiencies and cost savings for market participants."
“Change is never easy, but we think the current trend towards increased digitisation and automation and the push by financial institutions to improve operational and capital efficiency means it is important we start a discussion about the benefits of closer alignment,” he adds.
ISDA’s role, O’Malia says, is to highlight inefficiencies and identify ways in which cross-market alignment can be improved to benefit ISDA members and financial markets.
The association concludes that two areas must be reviewed in order to achieve alignment, the first is to optimise and centralise the management of collateral to improve operational efficiency and cost.
The second is the move to a digital environment. ISDA says that automation will drive cost efficiency, and there is an opportunity to provide scalable solutions on a global level as the industry considers the transition to digital contracts and a fully automated lifecycle.
ISDA believes that now is the time for the type of discussion outlined in its recent whitepaper, the full version can be read via this link.
In a new whitepaper, the US trade body explains how and why two large, important and interconnected markets – derivatives and SFTs – could achieve greater standardisation and improved efficiency.
The paper also sets out how the ISDA Master Agreement, which is currently used in over-the-counter derivative transactions, could be expanded to cover SFTs.
ISDA believes an important opportunity exists to further expand these efforts.
The key elements that ISDA has highlighted to achieve this would be developing common legal definitions across the derivatives and SFT markets, documenting derivatives and SFTs under a common master agreement and procuring one set of legal opinions in jurisdictions around the world.
ISDA also notes that implementing consistent solutions across the derivatives and SFT markets will enable market participants to more seamlessly adapt and migrate when key changes (such as the interbank offered rate transition) occur.
The association also emphasises the importance of facilitating the digitisation of the derivatives and SFT markets, in terms of both negotiating and documenting trades and developing a consistent trade record for confirmations and reporting, with standardised trade content and formats.
Scott O’Malia, CEO of ISDA, comments: “Closer collaboration and standardisation between derivatives and SFT markets would bring significant efficiencies and cost savings for market participants."
“Change is never easy, but we think the current trend towards increased digitisation and automation and the push by financial institutions to improve operational and capital efficiency means it is important we start a discussion about the benefits of closer alignment,” he adds.
ISDA’s role, O’Malia says, is to highlight inefficiencies and identify ways in which cross-market alignment can be improved to benefit ISDA members and financial markets.
The association concludes that two areas must be reviewed in order to achieve alignment, the first is to optimise and centralise the management of collateral to improve operational efficiency and cost.
The second is the move to a digital environment. ISDA says that automation will drive cost efficiency, and there is an opportunity to provide scalable solutions on a global level as the industry considers the transition to digital contracts and a fully automated lifecycle.
ISDA believes that now is the time for the type of discussion outlined in its recent whitepaper, the full version can be read via this link.
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