“Smart contracts could help drive substantial efficiencies in derivatives markets, but standardization is an important pre-requisite. ISDA is exploring opportunities for further standardization across its suite of existing documentations, including the schedule to the ISDA Master Agreement and the 2006 Definitions. Alongside our work on the ISDA CDM, these efforts will form the foundation upon which new technologies like smart contracts can be developed and adopted for use in derivatives markets.”
Katherine Tew Darras, International Swaps and Derivatives Association’s General Counsel
Current situation
Nowadays the closing of OTC derivatives trades between a corporate and a bank is an expensive operation due to:
BACK OFFICE COSTS: KYC + legal + operational + management and procedural costs;
CORPORATE COSTS related to credit/counterparty risk remuneration.
Moreover, transparency through the whole process is missing.
Current situation - IRS WORKFLOW
Pre-trade activities
Costs: Consultancy on Hedging Policy, Legal + Procedural, Dry Runs and financial support.
UPFRONT COSTS OF ABOUT CHF300k
Life cycle activities
Costs: On running basis operational, counterparty/credit, payments, hedging efficiency.
RUNNING COSTS OF ABOUT 20bp = 0.2%