Driving efficiency through the International Swaps and Derivatives Association (Isda)'s Common Domain Model (CDM) will prevent banks from exiting trading certain products according to Barclay's chief technology and innovation officer.
“It goes back to the cost of doing business,” said Barclay’s Lee Braine on a panel at Isda’s technology Forum in central London this week. “What if the cost of doing business, the cost per trade in that area goes up unacceptably high? Banks start exiting certain areas. So, I think [Isda’s CDM] is important in the long term.”
“I think there is a handful of banks including both British and US that are actively looking at internal adoption [of Isda’s CDM], including scenarios where they are looking at initially API access and then a shadow of it, and how do you replicate that, and what are the adapters between them.”
In March Isda published the full version of its open source CDM for interest rate and credit derivatives. The CDM was developed in response to regulatory changes, high costs associated with current manual processes and demand for greater automation across the industry. The initiative aims to tackle the lack of standard conventions in how trade events and processes are represented.
Since the publication in March, ten market projects have gone live, with the first prototypes to be ready by early next year, according to Leo Labeis, co-founder and chief executive officer, REGnosys.
Barclay’s Braine said the bank was open to working with vendors around open source technology.
“We are a big consumer along with many other banks of open source. It is – in a way – a preference for many of our technologies. Often, we look for some controls around it, such as a third-party vendor that can provide support with the actual software being open source itself is the challenge, that there are full controls to make it happen.”
While Andy Hill, senior director, market practice and regulatory policy at the International Capital Markets Association (Icma) and Andrew Dyson, chief executive officer, international securities lending association (Isla) said their associations are in the initial stages of creating similar initiatives to Isda’s CDM.
For Dyson, the majority of trades which fail in the securities finance market are due to inconsistent formats of trades.
“Our market is desperate for that consistency of approach through an open source series of codes, because we struggle in the post-trade space,” said Dyson. “We did a survey recently and we’ve got trades failing for all sorts of reasons but a lot of them are failing simply because one party is describing very differently to the other party, and they just don’t meet in the middle.
But Hill acknowledged there are still difficulties in encouraging a move to a CDM-like approach in the securities lending market.
“Selling the benefits is not that difficult, but it is trying to get that commitment, trying to get that investment and getting away from the short-termism,” said Hill. “SFTR would be a perfect use case for using the CDM but that train has left the station, people have already worked on legacy technology to support SFTR reporting.”