Over the past decade, building a more efficient and robust post-trade processing framework has become a key priority for financial institutions. The Common Domain Model (CDM) is one of the most promising technologies to emerge from this transition. In this TABB FORUM article, Leo Labeis, CEO at REGnosys, discusses indicators to measure the success of the CDM.
What the CDM does is greatly accelerate the development of solutions and makes them interoperable and interchangeable. It is therefore a mistake to use the adoption metric to measure the success of the CDM. Instead, there are three alternative indicators we can use:
- How many solutions, services and applications are or have been developed based on the CDM as their infrastructure?
While exact numbers are hard to come by since many are still in development phase, anecdotal evidence from our work with industry members suggests we have firmly crossed into two-digit territory.
One particular theme that has seen the industry coalesce around in 2022 is collateral management, with an important breakthrough to standardise collateral eligibility in the CDM through the so-called Eligible Collateral Model (ECM). Much more work remains to do in this area, but a strong and diverse group of industry participants made of buy- and sell-side firms, custodians and technology vendors have committed resources to the development of the ECM and its implementation. With the three trade associations, ISDA, ISLA and ICMA, now joining forces on the development of the CDM under FINOS, the surface area of the ECM is getting substantially larger and will eventually impact all of capital markets.
- What efficiency gains (time, money etc.) are these solutions allowing their users to realise?
On efficiency gains, this boils-down to a case-by-case basis. Early estimates of the overall cost reduction that CDM implementation could generate are around $3-4 billion, but that could be even higher. Regardless, this is best left to a free-market process to identify these bottlenecks and apply the CDM to reduce them.
In that regard, one interesting development is in the make-up of the “core” CDM community actively contributing to its development. This group features an increasing number of technology vendors, some established and some more green shoots. The one thing they all have in common is that they have identified some of these bottlenecks, are building solutions to remove them, and have figured a commercially viable way to share the gains with their clients.
- How much has the CDM accelerated the time-to-market of those solutions, or plainly made them viable?
One of the most advanced use-cases of the CDM is DRR. One reason why DRR could successfully be deployed to fulfil the new CFTC requirements last year is that the CDM had already reached a certain level of maturity. It was in its 4th year of development back at the end of 2021 when DRR shifted its focus onto the CFTC Rewrite. To be sure, the CDM had gaps that needed to be filled before it could be “CFTC-ready”. But it had a big head-start – including, for instance, a recently revamped lifecycle event model which turned out to be instrumental for trade reporting.