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functions within our member firms increasingly expect different obligations and events expressed within it. these standards and the underlying documentation. duplicative distribution of digital offerings will inevitably
us to make industry documentation available in Using thousands of agreements and clause samples, we Firms and infrastructure providers typically use their result in incompatible platforms and solutions. This
different formats to allow for easier integration within identified, defined and categorized the most commonly own unique set of representations for transaction events will increase inefficiency and cost to the market. We
their systems. negotiated clauses within the ISDA Master Agreement and processes. As a result, market infrastructure is will therefore ensure that our standards and their
and various credit support documents. Having inefficient and expensive. digitized representations are made available in a way
ISDA’s flagship digital offering is the 2020 ISDA established this framework, we created standard- that promotes competition, encourages innovation and
Definitions, a revised and updated definitions booklet form drafting options that are capable of achieving ISDA and ISLA both support the development of facilitates the development of mutualized technology
for use with interest rate derivatives. Alongside the vast majority of the most commonly negotiated common, interoperable industry standard models solutions within our markets.
necessary updates and adjustments to take account outcomes within standard-form ISDA documentation. for financial transactions and processes. The CDM
of market evolution and global benchmark reform This standard-form wording is now available for use by establishes a common, digital representation of Over the past 30 years, ISDA and ISLA have a proven
efforts, a key driver for this project is making the members in their negotiations². The Clause Library will derivatives trade events and actions that will increase track record of addressing our members’ problems
standardized interest rate definitions more user and also be integrated within ISDA Create, ISDA’s digital automation and efficiency in the derivatives market. with common, standardized solutions, such as the ISDA
technology friendly. negotiation and execution platform, when the ISDA This model can be easily expanded to cover additional Master Agreement and the Global Master Securities
Master Agreement is added later this year. That will products and contracts as a means of encouraging further Lending Agreement. Our two trade associations are
The 2020 ISDA Definitions will be produced in allow for more structured legal agreement data to be standardization across the financial markets. Indeed, ISLA perfectly placed and ready to lead and support our
a digital format, allowing for the production and captured as part of the negotiation process. is currently working to model and code specific securities members in developing enhanced, digital standards
maintenance of a consolidated and up-to-date view financing transaction (SFT) components for inclusion and in delivering our vision of a digital future for our
of the definitions. This will avoid the need for users to Importantly, we developed the ISDA Clause Library by in the CDM, creating greater alignment between markets. In doing so, we will foster an environment for
compile paper or pdf copies of the main definitional reference to substance and outcome, rather than form. derivatives and securities lending markets. technological innovation and reduce costs for market
booklet and up to 70 amending supplements in order Put simply, we focused on what a contractual provision participants. By removing complexity and strengthening
to understand the terms that apply to their trades intends to achieve, rather than the precise formulation Refinement and expansion of these models will facilitate the operational resilience of market participants, our
(as is the case with the current 2006 Definitions). of words used to achieve it. There is a clear opportunity greater connectivity between contractual terms and the initiatives will also contribute toward the reduction of
ISDA will deliver the 2020 Definitions later this year to expand this initiative to cover additional forms processes designed to implement important business systemic risk. All of this is consistent with ISDA’s mission
through an online platform, increasing accessibility of documentation across different types of financial and operational functions deriving from contracts, to build safer, more efficient markets.
and incorporating various built-in functionalities and transaction. For example, a cross-default clause within including netting and collateral enforceability, liquidity,
capabilities, such as hyperlinking and version control to one contract may achieve the same effective outcome and counterparty credit risk management. All of this will
provide a more user-friendly experience. as an equivalent clause located within a different type help move the industry towards more efficient, cost-
of contract. There is no good reason to treat these effective and scalable payment, settlement, collateral
Expanding ISDA’s digital offering across our suite of clauses differently, irrespective of drafting nuance or management and regulatory processes, providing
actively negotiated documentation requires enhanced the document in which the clause is located. A common, a robust foundation for further straight-through
standardization of those documents. Firms will always industry-wide taxonomy for financial contracts would processing and automation of financial transactions.
need to negotiate and customize documentation to be a powerful tool in dismantling institutional siloes and
address specific commercial, compliance, legal and enhancing risk management and regulatory compliance Of course, not everything within a contract can be
operational risks. However, excessive customization across different products and functional areas. digitized and automated. However, the vast majority
can increase complexity and on-boarding times, while of derivatives transactions and SFTs rely heavily upon
providing little or no commercial or legal benefit. A lack Standardization and digitization of documentation is repetitive operational processes, such as valuations,
of standardization therefore gives rise to operational only half the battle. There is also a lack of common data calculations, payments and settlements. These terms
inefficiency, increases risk through unnecessary and process standards, and little alignment between are readily capable of being automated effectively and
complexity and creates impediments to digitization. efficiently within a standardized, digital model.

In response, ISDA has developed the ISDA Clause ² The ISDA Clause Library currently covers the ISDA Master Agreement. Critical to the success of these efforts will be the extent Ciarán McGonagle
Library. This tool effectively deconstructs the standard The Clause Library will be expanded to cover various ISDA credit support to which market participants can easily access and Assistant General Counsel, ISDA
documents by the fourth quarter of 2020.
legal document and assigns meaning to the various More information is available here benefit from these new standards. Fragmented and

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