Global financial bodies unveil transition to single Common Domain Model

Derivatives, capital markets and securities lending associations boost efforts to standardise digital finance, deliver shared CDM

by | August 2, 2021 | bobsguide

Global financial markets associations revealed on Monday they’re working on a shared, cross-sector Common Domain Model (CDM) that would enable investors to access all existing information over a trade’s life cycle on a single and standardised digital space.

The International Swaps and Derivatives Association (ISDA), the International Capital Market Association (ICMA) and the International Securities Lending Association (ISLA) – representing three of the most prominent and impactful international financial trade bodies – have supercharged their efforts to achieve full and standardised digitalisation of financial trades’ data.

The three associations signed a memorandum of understanding on Monday that lays out “a framework for closer collaboration [on delivering a single CDM] and joint governance […] on the open-source components of the CDM and associated intellectual property for market-specific components.”

Moving to a single CDM, the associations said, would respond to the increased challenges that investors, traders and financial services companies face due to both multi-layered regulatory requirements and the pandemic-led ramped up trend of digital transformation.

A shared CDM would in fact help “align product definitions, digital legal agreements and operations,”  ISDA’s chief executive Scott O’Malia said, but also to “promote a consistent and scalable taxonomy to develop a more automated and cost-effective financial services infrastructure,” after last year’s significant surge in market volatility placed existing infrastructure under considerable strain.

Martin Scheck, CEO of ICMA, added the move will also accelerate work on “digitising common standards and best practice” and favour “interoperability and cross-industry efficiencies.”

“The completion of this MoU marks an important milestone on the journey to deliver digital standards to our collective members and other stakeholders including the regulatory community,” said ISLA’s chief executive Andrew Dyson, adding practical progress could be made in the next few months.

The transition to fully digitalised and streamlined data would also ease the industry’s regulatory reporting burden, the three associations said.

Pressing for global digital finance standards

While ISDA, ISLA and ICMA are already providing CDMs on some specific financial products – with ISDA working on reducing derivatives infrastructure‘s inefficiency and costs in the past couple of years and ICMA extending its CDM to repo transactions and bonds in July – a shared CDM would be a potential game changer in a world dominated by mounting regulatory complexity, open banking and digital finance.

The three associations had already urged global financial players and policymakers to streamline both regulatory standards and industry-led practices last year, warning that the Covid-19 pandemic had put pressure on firms’ operating models, challenging “established consensus around how trading and operations should function.”

On top of that, “complex and inconsistent reporting requirements between and within asset classes have further complicated the situation,” they said.

Laying out and adopting shared digitalisation principles and processes would allow the sector to “embrace transformational change” in financial markets and “build a safer, more robust global financial system.”

This would in turn avert the inefficiencies created by “incremental change”, which involves “continuing to make tactical investments in existing technology infrastructure, and reacting to specific issues and challenges as and when they arise with a patchwork of bespoke, potentially duplicative and manually intensive technologies and processes,” they said.

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