Trade Documentation: A Process in Need of Change
Derivatives trade documentation processes today are slow and complex. They demonstrate manifest inefficiencies and are subject to error. Paper-based contracts that are physically signed and communicated by fax remain commonplace for some asset classes. Even trades that are confirmed electronically require the exchange of messages that need to be checked for equivalence.
We took part in last week’s two-day DerivHack 2018, hosted by Barclays, which focussed on smart contracts, distributed ledgers and the emerging ISDA Common Domain Model. The aim was to discover how together the industry could potentially create certainty through a single, shared view of the trade. Participants included a range of DLT providers, banks and consultancies but our team was unique in two ways: we were the only software provider at the Hackathon and also our team was the only consortium. We teamed up with R3 and JDX and it was collaboration between partners that produced an award win for the most complete solution. Our team goal had been to produce an end-to-end system capable of integrating with existing trade processes.
Collaborating to Solve the Problem
A business network running on R3’s Corda platform demonstrated the ability to model post-trade events and actions on a distributed ledger, including trade events, payments and settlement. Now every counterparty to the trade could share the same view of the data on the same distributed ledger.
In the Hackathon, a package of system-ready data was used. In a real-world implementation integration of the ledger with existing systems would still be required. And this is where Xceptor would typically sit in the real-world as operations like drafting, agreement, reconciliation and exception management must still happen away from the ledger.
Our Hackathon solution used Xceptor’s existing pre- and post-trade workflow, documentation and matching platform. This part of the overall solution is already live across multiple asset classes in tier 1 banks today. In two days, we were able to demonstrate Xceptor could integrate with a DLT and a new data schema.
A Winning Solution
We set out to show how solutions that share trade data on a distributed ledger can be integrated into an established enterprise trade platform. At DerivHack 2018, our team solution won the award for providing the most complete solution that demonstrated use of CDM primitives.
ISDA has taken the first steps towards the industry-wide agreement required for these emerging technologies to be used in trade processing. And we’ve shown that a technical solution is not just a future ambition. It can be done today.
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