Understanding How the Common Domain Model Enables Post-Trade Automation
If you’ve spent any time in capital markets or post-trade infrastructure, chances are you’ve heard of the Common Domain Model (CDM). It’s one of those industry standards that gets mentioned in white papers, working groups, and strategy decks. But what does it actually do, and more importantly, what could it do?
Let’s break it down.
The CDM provides a standardised framework that outlines how financial products are traded and managed throughout their lifecycle. Users can gain access to the CDM to enhance interoperability and efficiency within financial markets, thereby facilitating better management of financial products and reducing operational risks. This standardisation is crucial for improving automation and increasing transparency in trading.
Additionally, the CDM ensures consistency and interoperability across the transaction lifecycle, which is vital for effective trade processing and lifecycle management.
Introduction to Capital Markets
The financial and capital markets are vital components of the global economy, providing platforms for individuals, businesses, and institutions to invest, raise capital, and manage risk. Organisations like the International Swaps and Derivatives Association (ISDA), International Capital Market Association (ICMA), and the International Securities Lending Association (ISLA) play crucial roles in promoting transparency, efficiency, and innovation within these markets. One of the key initiatives driving this progress is the Common Domain Model.
The CDM is a standardised, machine-readable, and machine-executable model that represents financial products, trades, and lifecycle events. By facilitating trade processing and promoting interoperability, the CDM has the potential to revolutionise the financial markets. It allows market participants to focus on their core activities, driving growth and sustainability. This model not only enhances the efficiency and transparency of financial transactions but also supports the global sustainability of the financial markets by ensuring that processes are standardised and streamlined.
CDM Today: A Static Role
The Common Domain Model framework was launched in 2017 by ISDA, with the aim to standardise trade processing across capital markets, addressing inefficiencies caused by fragmented systems and inconsistent data representations. It provides a digitally-executable blueprint that codifies the operational standards necessary to implement commercial, legal, and regulatory frameworks within capital markets, including derivatives.
The CDM also enhances automation and efficiency in the trade lifecycle management of derivatives transactions, ensuring standardised data and processes.
With high governance standards and growing market adoption, the CDM provides a robust foundation for automation within capital markets. Today, it is managed by FINOS and is available as open source.
Right now, however, the CDM is mostly used in a passive or static way. Think of it as a detailed logbook. It standardises how trade data is recorded and shared, which is great for consistency and regulatory alignment, especially in bond transactions. But its role is mainly descriptive.
Here’s how that plays out in practice:
- Business events (like a trade, a transfer, or a lifecycle event) are generated somewhere else, often manually, or by an old-school system.
- Once the event is done, someone (or something) translates what happened into CDM format and records it.
- The CDM record tells us what did happen, not what should happen or how to make it happen.
It’s like updating your diary after the day is over. Useful? Sure. But not exactly driving the action.
A Dynamic Approach: Operationalising CDM
Now here’s where things get exciting!
At Tokenovate, we’re taking a fundamentally different approach. We’re turning the CDM from a passive observer into an active and dynamic participant — even a decision-maker. In our world, the CDM doesn’t just record events after the fact; it defines, drives, and executes them in real-time, allowing providers to focus on their specialties instead of getting bogged down by the detailed interpretation of market events. This creates an environment that fosters innovation in financial markets, enabling accelerated development of new solutions.
Here’s how it works:
- CDM as Workflow: Instead of just holding data, the CDM is used to derive workflows directly from that data. In our intra-day repo use case, for instance, we parse the CDM object to identify key trade features (like asset types and transfer structures), and from that, we generate the full sequence of operations needed.
- Composable Logic: We build reusable workflow layers that apply logic within the CDM. This includes everything from contract creation to settlement and maturity, all mapped to the CDM’s structure and semantics.
- End-to-End Automation: Every action, from execution to final settlement, is powered by CDM-native logic. No need to bounce between fragmented legacy systems or rely on spreadsheets to make decisions. The CDM object knows what to do, and when. It improves the lifecycle of a trade, fostering the development of new solutions in financial markets.
In other words: the model is the machine.
Why This Matters for Capital Markets
Operationalising CDM means we can finally unlock the promise of real post-trade automation in capital markets. The CDM ensures that financial products and their lifecycle events are managed across the transaction, providing consistency and interoperability throughout the transaction lifecycle.
Additionally, the CDM facilitates trade processing by streamlining various financial transactions, such as repo, securities lending, and derivatives, thereby enhancing efficiency and automation across the transaction lifecycle.
It’s smarter, faster, and far more resilient, thanks to the standardised, machine-readable underlying code assets that increase transparency and interoperability in financial transactions.
Regulatory Compliance and Capital Markets
Regulatory compliance is a critical aspect of the capital markets, with financial institutions facing a complex array of legal requirements and regulatory reporting obligations. The Common Domain Model can help address these challenges by providing a standardised, machine-executable data and process model for financial products and transactions.
ISDA’s Digital Regulatory Reporting (DRR) is another important initiative, offering a comprehensive solution for translating amended rules into machine-executable open-source code. By leveraging these solutions, financial institutions can streamline their regulatory reporting processes, reduce costs, and improve efficiency. This not only promotes transparency and accountability in the capital markets but also ensures that regulatory compliance is maintained with minimal friction.
The CDM project, developed through an open governance process, has the potential to drive cross-industry collaboration and innovation. It enables market participants to represent market events and processes individually, promoting a more sustainable and resilient financial system. By standardising and automating regulatory reporting, the CDM helps financial institutions navigate the complex regulatory landscape more effectively, ensuring that they can focus on their core business activities while maintaining compliance.
Let’s Build – Cross Industry Collaboration
If you’re working on digital assets, repo markets, or exploring post-trade transformation, it’s time to rethink what the CDM can do for you. At Tokenovate, our platform doesn’t just use the CDM, it brings it to life.
We combine an operationalised CDM approach with our cutting-edge post-trade lifecycle automation tools to deliver seamless, real-time execution across the entire post-trade lifecycle of a trade.
Ready to go beyond the mirror? Let’s build the CDM engine — together.
