Reflections of the ISLA, ICMA & ISDA CDM Showcase

Last week, ISLA, the International Swaps and Derivatives Association (ISDA), and International Capital Market Association (ICMA), held an event in London to highlight the work that the three associations have done to develop a Common Domain Model (CDM) for the securities financing, repo, and derivatives markets.

By any measure, the day was a resounding success and exceeded our collective expectations, with places for the event secured several weeks in advance and not an empty seat in the house!

When speaking to delegates, I was struck by the diversity of business interests and groups represented, suggesting that the reach of this collaboration is resonating with an ever-increasing community. As we heard from panellists on a range of topics, including regulatory reporting, pre-trade negotiations, automating bond issuance, as well as our core businesses, it became increasingly clear that the CDM’s resonance varied across the room. I have spoken previously about how associations like ISLA are ideally placed to develop common solutions for mutual or market-wide challenges. Our joint work on the CDM takes that idea further, as when applied to three markets in this way, the incremental benefits in terms of a standardised approach are compelling, and attract the interest of market participants outside of our immediate spheres of influence as well as the regulatory community. With regulators increasingly mindful of the cost burden associated with reporting regimes such as Securities Financing Transactions Regulation (SFTR), as well as the time to market of a new piece of reporting legislation which can often take years from inception to implementation, a different approach is required. The standards the CDM set out, would allow regulators to pull the requisite information they need using these defined digital standards.

I also felt the mood-music around the CDM was quite different, having clearly moved from a concept or an idea, to a reality with panellists able to demonstrate how real-world applications are driving and delivering change. Despite the progress we are making, we should acknowledge that many challenges, especially around implementation and costs, still exist. It would be both wrong and naïve to expect firms to pull out their existing IT stacks to simply accommodate the CDM, especially at a time of general cost cutting and scaling back of ambitions in many firms. Having said that, one of the tangible benefits here is that it does not have to be an all or nothing choice, instead firms and individual market segments can deploy the CDM tactically to enhance things such as internal communications between legacy systems, or streamline post trade life cycle events between market participants. Therefore, adoption is more likely, at least in the short term, to be iterative rather than binary;  looking back at the agenda for the day tends to support that view.

Last week’s Showcase also coincided with another milestone in the development of the joint CDM, namely the migration of the core code to the open-source environment hosted by FINOS. Not only does this mean that the core CDM is freely available for all to use, but also in my view, it fundamentally changes the way we think about innovation. Through the open-source framework, market participants, vendors and other industry stakeholders can develop and make contributions to the core code that add to the depth and breadth of the model. By effectively putting innovation directly into the hands of those that live and breathe our markets, I would expect to see greater and more diverse collaboration with shorter development life cycles.

One of the challenges with innovation is not necessarily its inevitability, but its timing. We intuitively know the direction of travel, but reaching a tipping point when that innovation brings widespread change, is often dictated by factors other than ‘it’s the right thing to do’; factors such as cost, the preponderance of legacy systems, and vested interests can all be barriers to resistance, at least in the short term. When looking at the CDM event last week, it did seem to me that we may be on the cusp of that inflection point.

If you would like to be part of our CDM journey, or learn more, do reach out to David Shone (Director – Digital Affairs, ISLA). He would be more than happy to discuss our work here, as well as other digital initiatives that the Association is actively engaged in, such as the repurposing of our suite of legal documentation suite (GMSLA) to allow them to accommodate these new and novel asset classes.

Andrew Dyson

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