Finadium: ISDA’s Common Domain Model and the Digitization of Collateral

A new report from Finadium on ISDA’s Common Domain Model (CDM) seeks to evaluate where, how and why it solves business problems for collateralized trading markets. CDM documents how derivatives are traded and managed across the entire lifecycle of a transaction for the purpose of standardizing data elements. The generally accepted wisdom is that digitization, done right, saves money in the long run. We assess the current state of thinking at vendors and banks, and realistic paths for industry adoption.

For any market, the standardization of products, data and processing mechanisms is positive for product and technology development. Standardization enables firms to stop working on bilateral communication mechanisms and failures in post trade processes, and to focus their attention on building greater efficiencies internally and developing new products for clients. This is a familiar pattern across multiple markets including equities, bonds, options and futures. Although collateralized trading products have a robust vendor community that is focused on standardization, the introduction of a central model from a trusted industry body could encourage adoption by all market participants.

While OTC derivatives are the first market that ISDA has focused on, the concept of CDM can be applied to any collateralized trading product including securities lending and repo. These markets also consist of banks and vendors that have successfully standardized many of the data elements across the trading and post-trade lifecycle. As an additional call to action, SFTR requires a vast new amount of data standardization for firms to report across 153 required pieces of information. The secured financing industry has been hard at work to deliver on the new obligations, and this is already resulting in new services and service providers in the space.

While all would agree that standardization is a key ingredient for successful market development, many firms will have different approaches, desires and interests in controlling what that looks like. A cost benefit analysis of both budgets and relationships will be an important deciding factor in adoption of CDM.

This report is useful reading for product managers, technologists and operations professionals in collateral trading, including OTC derivatives, securities lending and repo.

Finadium research subscribers can log in here to access this report.

A direct link to the report for Finadium research clients is https://finadium.com/finadium-report-desc/the-common-domain-model-a-kickoff-for-digitization-in-collateral-at-last/

For non-subscribers, more information is available here.

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