The Standardisation of Derivatives

March 13, 2023

Derivatives trading has been around a very long time. In the last few decades however, the scope and scale of derivatives trading has increased considerably. With such significant growth comes more complex operating models. To date, the infrastructure supporting the market has served its purpose well.

In the last few years we have also seen the rapid adoption of new technologies having a material impact on how the world operates. Individual and isolated approaches by firms to solve increasing complexity in the pre-trade, trade execution and post-trade lifecycle have led to challenging business and operational contexts for market participants and their representatives, infrastructure providers as well as regulators. It doesn’t have to be this way. 

Standardisation can take many forms. And standards can be different depending on where in the world you are. At its core, however, standards should support – not stop – progress. 

There are of course challenges in establishing standards; competing interests fight for preference and inclusion. But if agreed, standards bring long term benefits: greater operational efficiency, consistent regulatory compliance, increased quality and transparency of data. Clear rules of engagement simplifies participation and drives more attractive incentives. ISDA recognised this early, and has been at the forefront of driving standardisation of derivatives trading. 

So what should be standardised in derivatives trading? ISDA themselves points out three key areas:

  1. Standardisation of data facilitates easy integration and interoperability. 
  2. Standardisation of documents encapsulates how relationships are captured. 
  3. Standardisation of process simplifies the overall operational model. 

For Tokenovate, standardisation of ISDA-based derivative products enables us to intelligently develop and operate our distributed financial market infrastructure and programmatic lifecycle event management software. The adoption of new technology, including the power of the cloud and the immutability of the blockchain, allows us to deliver fair and efficient solutions to our partners and customers. With standards in place, we are able to predict different scenarios more accurately, and we can collaborate more efficiently.  Through standardisation everyone is engaged. And everyone evolves. 

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