Featured Product

    ISDA Publishes Guidelines for Smart Derivatives Contracts

    January 30, 2019

    ISDA published the first in a series of "legal" guidelines for smart derivatives contracts. The guidelines outline some potential smart derivatives contract models, set out principles for the development of smart derivatives contracts, and identify contractual and documentation issues that may be relevant in the development and implementation of new technology platforms, products, and solutions for use within the derivatives industry.

    The guidelines are not intended to specify or recommend any particular approach, or address any particular technological application or project. Rather, they are intended to provide high-level guidance on the legal documentation and framework that governs derivatives trading and to point out certain issues that may need to be considered by technology developers when introducing technology into that framework. The guidelines establish that smart derivatives contracts do not necessarily need distributed ledger technology (DLT) to function and the adoption of smart derivatives contracts could be facilitated through other technology solutions. However, DLT is well-suited to the implementation of smart contract technology. These guidelines, therefore, assume that many smart derivatives contract models and applications may make use of DLT in some form.The paper establishes the following four principles in the development of smart derivatives contracts:

    • Smart derivatives contracts should be compatible with existing standards.
    • Only those parts of a derivatives contract that are capable of being automated should be considered.
    • Effective automation should be based on legal validation.
    • Only those parts of a derivatives contract where there exists sufficient benefit in automating should be considered for automation.

    The guidelines also outline the considerations for technology developers. The application of technology solutions to ISDA documentation raises some interesting questions about the precise boundaries of the single agreement architecture. One of the most fundamental questions is whether computer code might ultimately form part of the single agreement. The single agreement approach ensures that each party has a single legal relationship and financial exposure to its counterparty. Where the technology application is designed to record transaction data, it will be important to consider whether this data or any data outputs (for example, settlement records) should be considered part of the single agreement. A potential consequence of data sitting outside the single agreement construct is that it may not be admissible for construction of the overall legal and contractual relationship in the event of a dispute or close out. ISDA guidelines specify that, in designing technology enabled solutions for the trading or processing of derivatives, technology developers should work with their legal advisers to understand the various points of connection between each of the documents, take account of legal relationships created with any third parties, and consider how the solution may impact upon the entirety of the contractual relationship.

     

    Related Links

    Keywords: International, Banking, Securities, Regtech, Derivatives Contracts, Smart Contracts, Distributed Ledger Technology, Guideline, ISDA

    Related Articles
    News

    FDIC Proposes Amendments to Real Estate Lending Standards

    FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.

    June 15, 2021 WebPage Regulatory News
    News

    ISDA Consults on Implementation of Fallbacks for Certain Swap Rates

    ISDA is consulting on the implementation of fallbacks for the sterling LIBOR ICE Swap Rate and for the USD LIBOR ICE Swap Rate.

    June 11, 2021 WebPage Regulatory News
    News

    BIS and BoE Launch Innovation Hub in London

    BIS and BoE launched the BIS Innovation Hub Center in London, which is the fourth new Innovation Hub Centre to be opened in the past two years.

    June 11, 2021 WebPage Regulatory News
    News

    ESRB Recommends Reciprocation of Certain Macroprudential Measures

    ESRB published recommendations on the reciprocation of macro-prudential measures in Belgium, France, Luxembourg, Norway, and Sweden.

    June 11, 2021 WebPage Regulatory News
    News

    US Agencies Set Out Unified Agenda for Planned Regulatory Actions

    SEC announced that the Office of Information and Regulatory Affairs released the Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions.

    June 11, 2021 WebPage Regulatory News
    News

    EC Publishes Regulation on Key Aspects of Implementation of SA-CCR

    EC published the Delegated Regulation 2021/931, which supplements the Capital Requirements Regulation (CRR or Regulation 575/2013) with regard to the regulatory technical standards specifying the method for identifying derivative transactions with one or more than one material risk driver.

    June 10, 2021 WebPage Regulatory News
    News

    BCBS Consults on Prudential Treatment of Cryptoasset Exposures

    BCBS is consulting on preliminary proposals for the prudential treatment of cryptoasset exposures of banks.

    June 10, 2021 WebPage Regulatory News
    News

    EBA Revises List of Validation Rules for Reporting

    EBA issued a revised list of validation rules under the implementing technical standards on supervisory reporting.

    June 10, 2021 WebPage Regulatory News
    News

    Banking Authorities and Private Sector Collaborate on Wholesale CBDC

    BIS Innovation Hub, BDF, and SNB announced that, together with a private-sector consortium led by Accenture, they will conduct an experiment using wholesale central bank digital currency (wCBDC) for cross-border settlement.

    June 10, 2021 WebPage Regulatory News
    News

    ESAs Publish Amended Implementing Standards on Mapping of ECAIs

    ESAs published two amended implementing technical standards on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs).

    June 10, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7093