JDX’s Charles Post shares some closing thoughts from his panel discussion on the ‘Future of Derivatives Documentation’, at last week’s ISDA Legal Tech conference in New York:
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The problem statement for derivative documentation is “access”: access to information embedded within documentation (to find answers) and access to markets through the execution of mandatory documentation (to trade derivatives). This problem is measured by volume and people, compounded by time and multiplied by institutional idiosyncrasies. The ‘Tower of Babel’ is often used to describe the mixture of derivative acronyms and jargon, which are splintered by businesses, functions and regions, which magnify the problem.
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Whilst solutioning for the challenge appears daunting, in reality this isn’t an exercise in “boiling the ocean”. The first step for organisations, is to make a conscious decision to pivot tactical projects and programs towards an overall strategy. That strategy does not have to be concluded overnight—results are immediate and the possibility of implementing the strategy is real, with quantifiable success.
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Derivative documentation challenges become the most prevalent at times of regulatory change (Dodd-Frank, EMIR etc.) and in undertaking control/remediation activity to drive regulatory compliance. Market participants may end up viewing each new regulatory compliance initiative as a repeat of previous exercises, in what can feel like the regulatory equivalent of ‘Ground Hogs Day’!
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It’s now time for market participants to be practical and strategic, seizing opportunities to leverage the roadmap that ISDA and the industry have already paved.
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This first step towards that strategy begins with an understanding of the roadmap to digitisation, standardisation and straight-through-processing, whilst leveraging data standards (e.g. the Common Domain Model, ISDA Clause Library); AI data & text extraction tools; contract generation tools (e.g. ISDA Create); and emerging technologies such as Smart Derivative Contracts.
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