Isda doubles down on digital push with new tech team

The International Swaps and Derivatives Association is bringing its digital services under a single umbrella in an effort to identify new areas for standardization and drive adoption of its existing services. Isda’s CEO, Scott O’Malia, announced the creation of a new digital transformation team at the trade body’s London Trading Forum, held Tuesday, November 7.

“In an age of smartphones, smart TVs, and even smart refrigerators, we continue to use paper documents, manual processes, and non-standard practices when managing and processing derivatives trades. Isda has been working to address this by developing industry solutions designed to bring greater efficiency, standardization, and automation to derivatives markets,” O’Malia said during the event’s opening remarks.

Mark New, senior legal counsel, and Olivier Miart, senior director for risk and capital analytics, will share responsibilities for leading the division.

“They’re kind of a left and right brain, if you will. And they come together bringing the legal and documentation perspective, [with] the risk and capital, benchmarking platforms, and coding perspective,” O’Malia told WatersTechnology on the sidelines of the event.

Since 2016, Isda has released a series of services to help market participants negotiate the complex derivatives market. These include Perun, Isda’s quantitative analysis platform, and Isda Create, an online platform allowing firms to collaborate digitally on initial margin documentation.

In 2018, Isda launched the digital common domain model (CDM), a representation of trade products, actions, and events across the trade lifecycle. It collaborated with other trade bodies to put the initiative on an open-source repository run by the Fintech Open Source Foundation.

The new structure with an emphasis on digital transformation could be aimed at bringing more industry templates like the CDM and Isda Create to market.

“Our reason for doing this is simple: there are certain processes that we think we can benefit from having automated, standardized industry solutions for eliminating needless inconsistencies, errors, and risks. For market participants, it’s far cheaper and more efficient to use a mutualized solution for those tasks where there’s no competitive advantage from going it alone,” O’Malia said.

However, Isda’s previous standardization projects have occasionally struggled to gain traction, with the cost of adoption varying according to the complexity of each firm’s internal definitions. O’Malia recognizes that the value of these standardized projects increases as they gain users, so spreading the word is a priority. “Of course, these efficiencies will increase as more and more firms implement the same mutualized solution, so a key focus for us will be raising awareness and encouraging adoption,” he said.

Another task for the new team will be the development of an industry “notices hub”—a central platform for firms to send critical notices and automated alerts to counterparties.

The current model under the Isda Master Agreement, a template used to document transactions, requires that notices be sent to the counterparty’s company address listed in the agreement. But notices can fail to get to the recipient if the company moves without updating the agreement.

Speaking to attendees, O’Malia said that the need for a notices hub became clear during the pandemic, when lockdowns kept some people from accessing critical updates sitting at their office. When the hub launches, designated people in each firm will be able to access it from anywhere in the world, regardless of the situation at their physical location.

Another part of Isda’s digital transformation push is an ongoing project to digitize its legal documentation. The trade body’s MyLibrary platform now includes 90 derivatives documents, allowing firms to query and pinpoint contractual terms rather than searching through lengthy legal documents in physical form. O’Malia told attendees of the London Trading Forum that Isda is exploring the use of artificial intelligence to speed up the process of adding and categorizing documents.

Isda says that it is actively consulting members on new areas of the derivatives trading process that could be standardized or automated, but it has not disclosed details of future initiatives that it may have in the pipeline. However, O’Malia told the audience that the new structure should speed up the process of bringing new digitization projects to fruition, with one team, a single budget, and a clear task to motivate them.

“Before, it was relying on collaboration and working together. Now we’ve just said, ‘Let’s put them in one house and make them totally responsible for this transformation,’” he said.