CDM: The Road to Adoption Series: Standard Representation for Legal Agreements

Multiple agreement types exist in the financial markets as conventions and practices in each domain vary. This has led to specialised agreements being required in order to align with each market’s standards and expectations. For example, securities lending is covered by the Global Master Securities Lending Agreement (GMSLA), repo by the Global Master Repo Agreement (GMRA) and derivatives by the ISDA Master.

Without these master agreements and associated annexes, it would not be possible for parties to have a clear understanding of their rights and obligations. Having these agreements in place is a fundamental requirement for market integrity.

Figure 3: Highlights how the CDM provides a structured common representation of the legal clauses, terms and agreement elections.

Although each document has its own nuances, the CDM draws upon the commonalities across them to provide a representation of the operational aspects of the agreements. These common terms can then be decided and set within the representation of a trade, meaning that the legal constraints defined in the clauses of an agreement can be included along with the trade data.

Figure 4: The Representation of a Smart Contract.

This integration of legal and trade data allows actions to be programmed (e.g. into smart contracts) which are executed when specific lifecycle events or scenarios are encountered, enabling an automated and instant reaction to counterparty or market events, reducing risk.

As the CDM is an industry-wide initiative, it offers institutions the opportunity to consolidate their documentation management using a single document definition. Several service providers have now taken advantage of this feature, offering the ability to import, export and negotiate contracts all using the CDM format.

The use of a common data standard for these agreements not only helps counterparties with dispute resolution and document maintenance, but will make it easier for the legal terms of agreements to be upheld, supporting market resilience and reduce the risk of market events. The standardised format provided by the CDM will thus also help banks and vendors meet their commitments under the Digital Operational Resilience Act (DORA).

This article is an excerpt from our ‘CDM: The Road to Adoption’ report – click here to read the full report.