29 July 2016
Find out more

Machine-readable OTC derivatives contracts move a step closer

11 April 2011  |  11235 views  |  1 Financial numbers

Regulatory efforts to introduce more automation in manually-driven over-the-counter derivatives trading have been advanced by the publication of new research into the feasibility of rendering OTC documentation in machine-readable format.

A joint study by the Securities and Exchange Commission and the Commodity Futures Trading Commission was commissioned in July under a Dodd-Frank mandate to explore "the feasibility of requiring the derivatives industry to adopt standardised computer-readable algorithmic descriptions which may be used to describe complex and standardised financial derivatives".

The SEC/CFTC study, published late Friday, concludes that "current technology is capable of representing derivatives using a common set of computer-readable descriptions. These descriptions are precise enough to use both for the calculation of net exposures and to serve as part or all of a binding legal contract."

However, while the use of automated techniques may be adopted across a "broad cross-section" of derivatives, their universal application as an industry standard requires further work. Outstanding issues include the development of "a universal entity identifier and product or instrument identifiers, a further analysis of the costs and benefits of having all aspects of legal documents related to derivatives represented electronically, and a uniform way to represent financial terms not covered by existing definitions".

The US Office of Financial Research is currently trawling for ideas about how it should go about creating a legal entity identifier (LEI) system for financial contracts.

The OTC study suggests that the SEC and CFTC seek input from other regulatory agencies and the OFR and "engage in a series of public-private initiatives to foster collaboration between the regulators and the derivatives industry to work toward representation of a broader cross-section of derivatives in computer-readable form".

Read the full study:» Download the document now 291.1 kb (PDF File)

Comments: (1)

A Finextra member
A Finextra member | 11 April, 2011, 18:57

LEI is really so important to the FS industry for so many reasons. The need is for it to be global and cover all markets and all types of investor. If the industry is seduced by SWIFT it will set the whole concept back years. Whats needed is a fresh start with a Global council operating a not for profit licence for LEI use. It then should utilise existing networs and technologies to deliver to the user. I fear that SWIFT will be seen as a quick cheap option and that it is certainly not! 

Be the first to give this comment the thumbs up 0 thumb ups! (Log in to thumb up)
Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

ISDA issues RFP for commodity derivatives trade repository

ISDA issues RFP for commodity derivatives trade repository

25 March 2011  |  9999 views  |  0 comments
Iosco supportive of switch from OTC to exchange-based trading

Iosco supportive of switch from OTC to exchange-based trading

18 February 2011  |  10046 views  |  1 comments
EC bids to tame 'wild west territory' of OTC derivatives and short selling

EC bids to tame 'wild west territory' of OTC derivatives and short selling

15 September 2010  |  8183 views  |  0 comments
Nyse Euronext and Markit Boat in OTC data reporting play

Nyse Euronext and Markit Boat in OTC data reporting play

01 July 2010  |  9825 views  |  0 comments
Major dealers outline next steps in OTC clean-up

Major dealers outline next steps in OTC clean-up

03 March 2010  |  9759 views  |  0 comments
Regulators fast-track global review of OTC derivatives clearing

Regulators fast-track global review of OTC derivatives clearing

02 February 2010  |  8167 views  |  0 comments
DTCC calls on lawmakers to mandate use of central trade reporting utility

DTCC calls on lawmakers to mandate use of central trade reporting utility

09 October 2009  |  6421 views  |  0 comments
Dealers to accelerate central clearing of OTC trades

Dealers to accelerate central clearing of OTC trades

09 September 2009  |  8416 views  |  0 comments
OTC derivatives gain standards based on FpML

OTC derivatives gain standards based on FpML

29 July 2009  |  6645 views  |  0 comments
US regulatory reforms to drive automation in OTC trading

US regulatory reforms to drive automation in OTC trading

14 May 2009  |  7888 views  |  0 comments

Related company news

 

Related blogs

Create a blog about this story (membership required)
Visit VocaLink.comVisit capgemini.comFind out more

Top topics

Most viewed Most shared
Groupe BPCE agrees to buy FidorGroupe BPCE agrees to buy Fidor
7015 views comments | 31 tweets | 47 linkedin
Telefonica Germany launches Fidor-backed mobile banking serviceTelefonica Germany launches Fidor-backed m...
6970 views comments | 16 tweets | 22 linkedin
hands typing furiouslyManaging Big Data After Brexit
6374 views 0 | 6 tweets | 8 linkedin
hands typing furiouslyBank of Pikachu? What does Pokemon Go mean...
5572 views 0 | 10 tweets | 9 linkedin

Featured job

Find your next job