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News: The Collision of the Law and Technology: A White Paper from ISDA on Smart Contracts and DLT

04 August 2017 | Bill Hodgson

ISDA and LinkLaters have produced a paper which explains the challenges in turning the english language form of ISDA documentation into something which computers can store and execute. The paper explains how some wording such as "good faith" and "commercially reasonable" have no easy encoding in any language, but that many operational provisions such as those for interest and payment calculations can easily be translated.

Overall this paper is a worthwhile read as it precedes what could become an entirely new way of creating, communicating and executing contracts. The paper also points out that moving the industry in this direction will require wide cooperation to build common infrastructure as individual implementations will cause yet more integration problems. Perhaps the combination of electronic contracts, further iterations of FpML and the adoption of distributed ledgers can be likened to the Operating System and 'apps' we are all familiar with on our phones. 

  • The ISDA Operating System
    • A common data representation
    • A common operating model for processes and interactions
    • A common machine readable form of legal documentation
    • A common legal framework, in electronic form
  • The apps
    • A distributed ledger globally for all ISDA contracts
    • A bilateral distributed ledger between counterparties
    • An interest and payments calculator
    • A pricing model
    • A curve builder
    • Reference data supply
    • Electronic signatures
    • Cashflow netting
    • Data transformation (such as to SDRs, TRs)
    • Data reconciliation (will it ever go away?)
    • Exposure calculations
    • Margin calls
    • Dispute resolution
    • Central clearing?

What the future looks like may involve more cohesion between 'apps' from vendors making integration less expensive. Will this lead to zero touch STP? Let me know in the comments. Read the full paper below.

 


Comments

It's great now that ISDA taking lead on this and it's about time the OTC trade life cycle to be refreshed with a more simpler and streamlined workflow, if it can breakdown the walls between internal pts and external platform we may not need face any intergration complexity created due to this.