In the digital world, improving operational efficiencies and mitigating risk are often the drivers for change. Rightly so – given the need for ongoing improvement to processes and workflows that eclipses even cost. Disruptive innovations in the derivatives landscape have been focused on areas such as trading, clearing, settlement and reporting. The question remains, are there any untapped areas in need of digital change management?
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The Journey to Global Data Harmonization in Trade Reporting
In November, I participated on a virtual panel of the recent International Swaps and Derivatives Association (ISDA) Annual Asia Pacific Conference, where my fellow panelists and I explored a traditionally manual space: trade documentation. Should the path forward for documentation be geared towards digitization to realize the benefits of operational efficiency across the entire trading lifecycle?
For the industry to make great strides in process improvement across the entire trade lifecycle, we recognize that standardization is key. The ISDA master agreements and other documents have created the foundation to enable over-the-counter (OTC) markets to evolve, setting “standard terms” to govern many transactions. A series of reforms were introduced after the 2008 financial crisis to further drive standardization, with the G20 agreeing to mandate trade reporting and the exchange of margin, as well as trading and clearing of the most standardized contracts. Twelve years later the market is much more standardized and efforts towards convergence continue.
These efforts represent a true commitment from the regulatory community to harmonize data and reporting mandates by reviewing and rewriting rules to align with today’s trade reporting environment.
Three pillars to further digitalization
We agreed that further progress would require continued dialogue and cooperation among industry players, the regulators and users. We presented three key pillars to bring further innovation into the derivatives space:
1. Common Interface
Efforts such as the ISDA Common Domain Model (CDM) or the ISO20022 standard for trade reporting need to continue to be developed and finalized to meet the industry’s needs and adopted by the industry at large.
2. Backward Compatibility
When working on any initiative, we need to consider the long tail of existing contracts and the reality of ongoing compliance and disclosure obligations, and the need to adapt legacy systems and processes.
3. Embed Resilience
All changes must now incorporate, from inception, considerations on resilience – ranging from business continuity considerations to cybersecurity.
Collaboration is the key to the future of derivatives market in its ongoing march towards digital transformation.