Over time, the platform will allow information contained in the ISDA 2020 Definitions to automatically flow through to trading, operational and risk management systems.
ISDA (International Swaps and Derivatives Association) is planning to release a web-versioning platform by year-end that will enable users to electronically access the new 2020 ISDA Interest Rate Derivatives Definitions.
“This will allow the 2020 Definitions to be amended and restated in their entirety each time they are updated, enabling users to view the fully consolidated set of definitions that prevailed at any particular time,” ISDA chief Scott O’Malia said in a derivatiViews post.
Currently, users of the ISDA 2006 Definitions have to manually assemble the definitional booklet plus various supplements, typically in paper or PDF form, in order to determine the terms of each trade at the time of execution – a process that is “unwieldy, time consuming and easy to get wrong”.
The new platform will be launched as part of a review of the 2006 Definitions to reflect the last 14 years of transformation in market practice and regulation, and to make them able to robustly respond to contingencies such as benchmark cessations and market closures.
The new platform may also include hyperlinks within the text to explanations of key terms, the ability to run comparisons between different versions of the text, and multimedia content and guidance.
“We’re also looking to structure the definitions so they are easier to consume by machines – for example, by using formulae instead of legal narrative to describe mathematical terms and documenting identical concepts with consistent language,” O’Malia said.
Over time, the mechanics of the definitions will also be available via open-source code and aligned with the Common Domain Model, which will improve efficiency and allow information contained in the definitions to automatically flow through to trading, operational and risk management systems.
Among the other proposed changes, the valuation mechanics used to settle swaptions and trades subject to mandatory or optional early termination will also be replaced to better reflect current trading and collateral practices, and floating rate options will be amended to provide a single price-source-agnostic definition for each interest rate benchmark.
ISDA will also incorporate in the 2020 Definitions the forthcoming supplement on fallbacks for derivatives referencing IBORs (interbank offered rates), as well robust fallbacks for non-IBOR benchmarks.
“These proposed changes will have an impact rigOver time, the platform will allow information contained in the ISDA 2020 Definitions to automatically flow through to trading, operational and risk management systems.ht across firms, from legal to trading to operations,” O’Malia said, inviting feedback from buy- and sell-side firms, market infrastructures and middleware providers on the various on proposals.
“We recognise an overhaul of the definitions will require systems changes and time and resources to implement. But it comes with a number of very important benefits… By publishing our first natively digital set of definitions, we’ll have a framework for interest rate derivatives that will last for the next decade or more.”