CDM: promoting data standardisation across the trade lifecycle
04 April 2023
Bob Currie reports on efforts to promote a common digital representation of lifecycle events for securities lending, repo and derivatives trades and examines what comes next on the Common Domain Model project agenda
Image: stock.adobe.com/stokkete
The Common Domain Model 鈥� or CDM 鈥� provides a common data representation of transaction events, offering a common template or set of fields that the industry will use to share trade information and other key data. Among multiple benefits, CDM adoption aims to reduce the burden of reconciliation and lower the risk of mismatches or settlement failure caused by inconsistency in how data fields are used.
For four years, the International Swaps and Derivatives Association (ISDA) has been active in the OTC derivatives market in promoting a common digital representation of the steps, or 鈥榣ifecycle events鈥�, associated with a derivatives transaction.
Subsequently, the International 网爆吃瓜 Lending Association (ISLA) has been working with ISDA and the International Capital Markets Association (ICMA) to apply a CDM to securities lending transactions, and ICMA has been doing similarly for repo and bond trades. Aligned to this activity, these trade associations have been working to develop digital versions of their market standard master agreements.
In May 2022, the three industry associations which have collaborated to deliver the CDM project issued a tender to meet the requirements of providing a repository for the CDM resources.
The requirements included maintaining the CDM code, facilitating the growth of a community of CDM contributors, and creating governance structures which allow these contributions to be overseen by the associations. On the basis of this request for proposal (RFP) and selection process, FINOS was appointed in September 2022 to provide this repository service, enabling users to access CDM resources as open source.
In line with this agenda, Ian Sloyan, senior adviser, data and digital solutions at ISDA, explains that the recent project focus has been on moving the core of the CDM to the open-source repository at FINOS. 鈥淲e are taking the CDM elements that will be made open source, which is the vast majority of the CDM code, and managing its migration into the FINOS repository 鈥� in doing so, we are aligning with the governance structures that FINOS requires,鈥� he says.
ISDA indicates that it welcomes the opportunity this will offer to broaden the base of CDM contributors and to use the open-source tools and best practices available through FINOS to widen the scope of contributors. 鈥淭o date, many of the contributions to the CDM project have been coordinated through the trade associations and their technology partners,鈥� says Sloyan. 鈥淎s part of the FINOS community, this will enable us to link with a wider range of projects under the FINOS umbrella and to align more easily with industry standards and protocols, including FIX and ISO 20022 standard messaging supported on the SWIFT network.鈥�
Open collaboration
FINOS was established to provide a forum for non-competitive open collaboration between participants in the financial services industry. In pushing this objective, it aims to offer both the open-source tools and the community of users that will propel the development and adoption of the CDM.
In 2020, FINOS staged a pilot programme for submitting changes to the CDM model using Legend, its open data modelling collaboration platform developed initially by Goldman Sachs in collaboration with FINOS and a number of other large global investment banks.
In addition, the FINOS Financial Objects Special Interest Group (FO SIG), led by Goldman Sachs and ISDA, provides a forum for collaboration on data modelling for a range of business use cases, for example carbon credits for energy projects and data lineage of digital assets.
鈥淲e have a successful track record of model development using Legend at FINOS and we are fully committed to establishing an operating model that incorporates both Legend and Rosetta [a language and tool set developed by REGnosys] in the CDM modelling process,鈥� says Ian Sloyan, ISDA鈥檚 senior advisor, data and digital solutions and a co-lead of the FO-SIG.
At a recent Open Source in Finance Forum in New York, ISDA released its Digital Regulatory Reporting (DRR) live in production with one of its association members, BNP Paribas, using code developed using the CDM to meet regulatory reporting obligations under the US Commodity Futures Trading Commission鈥檚 (CFTC鈥檚) revised swap data reporting rules.
In a joint statement released on 18 February 2023, ICMA, ISDA and ISLA announced that the CDM is now available in FINOS under the FINOS Community Specification License 1.0. Further details are available via the FINOS Common Domain Model web page or via the GitHub.
Trade negotiation
ISLA鈥檚 CDM Trading Working Group was established at the end of Q1 2022, providing an open invitation to vendors and other market participants in the trading space to apply the model to their trading solutions and to deliver greater standardisation across securities finance trading activities.
鈥淎s an Association, ISLA has played a role 鈥� alongside ICMA and ISDA 鈥� in facilitating this conversation,鈥� says David Shone, director of digital affairs at ISLA. 鈥淲e identified an opportunity through CDM to standardise trade negotiation workflow, which is our first step into applying the workflow elements of the CDM.鈥�
Now, the CDM Working Group is looking to move beyond the product, transaction and legal components, which have been its primary focus until now, to apply the CDM more widely across the transaction value chain 鈥� recognising that there is great value in applying standardised procedures to operational processes.
In February, the three trade associations held an industry event in London to profile the work that has been done to develop a CDM for the securities financing, repo and derivatives markets, providing opportunity for firms to discuss concrete use cases and to share their experiences in applying CDM.
Mike Lambert from Broadridge and Robert Miles from GLMX presented at this CDM Showcase event, which illustrated the practical steps that the group has done and their work as vendors in turning this into practical application.
This explained the workflow in diagrammatic form and then in coded form through examples using Rosetta, REGnosys' regulatory reporting platform. This use-case employs 鈥減ropose-counter-accept" workflow for trade negotiation. With this, the user can accept a proposal and execute. Alternatively, the user can issue a counter proposal, amending the original and presenting this back to the counterparty for review 鈥� with the proposal going backwards and forwards as many times as required. Or the proposal can be rejected.
This provides a mechanism for automated negotiation between counterparties that largely eliminates manual touch points.
Code reusability
In their CDM work to date, and in their future plans, the trade associations have adopted a deliberate strategy to focus on different parts of the transaction workflow. Chris Rayner, ISLA senior associate for market infrastructure and technology, points out that development work on trading workflow conducted by ISLA is applicable not only to securities lending trades, but may be applied more widely in modelling derivatives, repo and other trade types 鈥� and this is similarly the case for the work done by each of the trade associations. The standardisation offered by the CDM is key to enabling re-use of CDM objects across trade types and use cases.
For ISDA, a core component of its recent CDM development work has been on digital regulatory reporting. The challenge of ensuring that market participants report their derivatives trade data in the correct format 鈥� and maintain accurate and timely trade reporting as regulation is constantly released and amended 鈥� has been a major overhead for the derivatives industry. This has been a key driver for its Digital Regulatory Reporting (DRR) initiative.
This DRR project aims to deliver a standardised data model to guide trade reporting. Rather than each firm creating a regulatory reporting solution based on its own interpretation of the rules, market participants are developing an industry-led standardised interpretation of the regulation as open-source code. In turn, DRR will allow regulators to publish reporting rules as machine-executable code that can be automatically read and interpreted by the IT systems of reporting firms, thereby improving the reporting process across asset classes.
In November 2022, BNP Paribas was the first company to go live with the DRR under the CFTC鈥檚 amended swap data reporting rules in the US, representing the first implementation of ISDA鈥檚 DRR solution in a real-world production-level environment, with trade data submitted to the DTCC鈥檚 swap data repository.
Commenting on this development, ISDA鈥檚 director of data and reporting Andrew Bayley, explains that DRR is live for the CFTC鈥檚 amended swap data reporting rules and ISDA is now working on EU reporting rules under revisions to the European Market Infrastructure Regulation (EMIR), or EMIR Refit. Many of the same firms that participated in the CFTC initiative are involved in the build for the EMIR Refit, with new firms joining on an ongoing basis. This, he suggests, reflects the success of the DRR service and the positive feedback it has generated since BNP Paribas announced it is using the DRR for its CFTC reporting.
Other jurisdictions are now preparing for similar rule rewrites. For example, the Japanese Financial Services Agency (JFSA) has announced it will implement amendments to its derivatives reporting rules in April 2024. Updates are also being made in Australia, Canada, Singapore and the UK.
One of the strengths of the DRR, Bayley believes, is the reusability of code which will help speed up the modelling process. For example, ISDA anticipates that the combined EMIR and CFTC rule set will cover more than 90 per cent of the JFSA requirements.
鈥淚n short, we are no longer starting from scratch for subsequent regulatory implementations,鈥� he says. 鈥淭he development process for the CFTC amendments took just over 12 months, but this could fall to a few months in future. As regulators make further incremental changes, the implementation time could fall to a few weeks or even days, depending on how significant the changes are.鈥�
The DRR can be used in different ways. For example, BNP Paribas is utilising the DRR to generate its outgoing reports. But firms could also use an in-house solution or an alternative vendor to generate their regulatory reports and use the DRR to validate their implementation against the regulatory requirements.
Repo lifecycle
ICMA is set to conclude Phase 2 of its CDM project for repos and bonds close to the end of Q1 2023, enabling users to automate repo processing and to streamline trade reporting.
The Association reports that its focus during Q4 2022 was on finalising technical programming of repo structures and processes into the CDM model. It has been working with REGnosys to capture repo lifecycle events such as interest rate changes, close and reopening of a trade position, and shaping a trade 鈥� splitting a large trade into smaller elements to improve settlement efficiency.
ICMA was approached for an interview for this article, but did not put forward a spokesperson prior to publication. However, SFT understands that the next steps in ICMA鈥檚 CDM project include integrating elements of the General Master Repo Agreement (GMRA) clause library as a foundation for smart contracts and to apply commonalities between the ICMA Common Data Dictionary for primary bond markets and the CDM to facilitate issuance, trading and settlement of DLT-issued bonds.
More broadly, beyond CDM, ICMA鈥檚 DLT Bonds Working Group continues to work to advance the development of nascent DLT bond markets and to liaise with financial supervisors, investors and issuers on raising awareness and understanding of this digital asset class.
Pre-trade accuracy
For ISLA鈥檚 CDM Trading Working Group, one of the next items on the project agenda will be to tackle loan availability. Mike Lambert, securities lending product director at Broadridge Financial Solutions, notes that in assessing loan availability, a firm may receive information from multiple lenders, each of which may employ a different data format and a slightly different definition of what loan availability means. For the recipient, the challenge is to take in this data 鈥� sometimes via API, but often sent as an excel file or via email 鈥� to collate, validate and normalise this data before it can be used as an input for trade negotiation. This data cleansing and validation process is resource intensive 鈥� and the working group is confident that CDM will bring major benefit in standardising data formats and reducing costs of data cleaning.
To date, ISLA鈥檚 CDM Working Group has focused its initial energies on trade negotiation, digital documentation and other pre-trade processes. Lambert explains that its rationale was twofold. By getting the pre-trade elements right, this accuracy and standardisation feeds onwards throughout the trade lifecycle. Second, the pre-trade segment remains a relatively underserved part of the transaction lifecycle and has benefited from a concerted focus within the WG on how to eliminate pre-trade errors and mismatches 鈥� errors that are a frequent cause of downstream processing errors and STP breaks.
By applying CDM from trade negotiation downstream across the lifecycle, this eliminates the risk of mismatches and reconciliation breaks, creating a golden entry point where trade data is booked in standardised format prior to executing the opening leg of the SFT. Delivering standardisation pre-trade means less risk of downstream operational errors and it reduces the reconciliation burden.
In November 2022, ISLA also launched its Document Digitisation Working Group, which is focused on digitising the Global Master 网爆吃瓜 Lending Agreement (GMSLA, relating to title transfer trades) and the 网爆吃瓜 Interest over Collateral (for pledge transactions). This group is administered by D2 Legal Technology (D2LT), but with contributions from key specialists in this space including document negotiation platforms such as SmartDX and Broadridge. Sixteen firms are now participating in this working group.
ISLA鈥檚 David Shone indicates that the group is currently working with the Clause Library and translating this into the CDM鈥檚 data structure. This will facilitate counterparties鈥� ability to negotiate SLB transactions electronically and to create a CDM object that captures the legal terms of the trade, represented in the same model as the trade details and product representations that they govern. This paves the way for further automation of lifecycle events for SLB, repo and derivatives transactions.
The group has outlined the modelling principles, specifying the rules that should be followed. 鈥淲e now have group members actively working to model their own agreement clauses,鈥� says Shone. 鈥淲ith multiple firms contributing, each is gaining modelling experience, applying the CDM principles to their own use cases and keeping the project advancing at good speed by sharing the development workload.鈥�
CDM repository
In February, the three trade associations migrated the CDM code into the FINOS repository and this is now available as an open-source resource. Some administrative details are still to be finalised, notes ISDA鈥檚 Sloyan, but the CDM code is available to users via the FINOS GitHub common domain model page.
The inaugural CDM meetings at FINOS took place on 14 March and these CDM meetings are open sessions that can be attended by interested parties from across the FINOS community. There will be subsequent FINOS meetings to build, agree and maintain the code on an ongoing basis.
For collateral management, CDM development activities will be coordinated through a Collateral Working Group that will be administered by FINOS. Participation will be open to any firm that wishes to attend from the FINOS open source community.
As co-lead of the FINOS Financial Objects Special Interest Group (FO-SIG), Sloyan indicates that ISDA鈥檚 focus to date has been principally on the DRR and it has not yet had opportunity to make big commitments to other use cases. However, through the FO-SIG, he notes that there is an ongoing dialogue on sustainability data and integrating that with the financial infrastructure, as well as standardisation of data elements to support the trade lifecycle for digital assets.
鈥淲e are confident that FO-SIG will provide a space where participants can discuss new ideas, and then those ideas can become reality, if applicable, via the CDM governance structures or through other projects at FINOS or elsewhere,鈥� says Sloyan.
Outside of the DRR, Sloyan indicates that the primary focus for FINOS will be on collateral. Initially, this will centre on the development of digital collateral eligibility models that are built on CDM formats and will lower eligible collateral negotiation times, improve interoperability and streamline user onboarding by enforcing a standardised data structure.
Preliminary work is also ongoing to support further automation of interest calculation and processing for cash collateral, automating collateral calculations and movement of funds while reducing settlement fail rates.
Steps to improve data reconciliation are inherent to the CDM and this model will be applied to support automated portfolio reconciliation and collateral dispute resolution. By enforcing standardisation of data requirements, this provides opportunities for users to focus on mismatches and to deliver genuine exception-based workflow.
Production use-cases
Arguably, the CDM project is now reaching a tipping point where it has moved beyond proof of concepts to real-life production examples, where the securities finance community can see concrete applications of the CDM in live use cases and can identify this as a benefit to their company and to the industry at large.
鈥淔irms may recognise, for example, that had CDM already been in place at the time that the 网爆吃瓜 Financing Transactions Regulation (SFTR) was implemented, their preparations for SFTR would have been much more straightforward,鈥� says Broadridge鈥檚 Lambert. 鈥淏y the same token, we believe that having CDM in place will make it significantly easier to prepare for future regulatory adaptation.鈥�
For ISDA鈥檚 Bayley, the time and resources committed to regulatory adaptation in recent decades has been enormous and broadly unsustainable. Financial supervisors recognise this and are focusing on steps to accelerate this process and reduce costs. The UK Financial Conduct Authority's (FCA's) Transforming Data Collection initiative provides one example. In the EU, regulators are engaging with the industry to promote machine-readable and executable regulatory reporting.
鈥淣o matter how regulators label these initiatives, it is likely they will promote standardised data models that look much like the CDM and deliver solutions that look much like ISDA鈥檚 DRR initiative,鈥� concludes Bayley. ISDA, ICMA and ISLA, as trade associations, are at the forefront in promoting CDM-based data modelling that will benefit financial regulators and the industry at large.
For four years, the International Swaps and Derivatives Association (ISDA) has been active in the OTC derivatives market in promoting a common digital representation of the steps, or 鈥榣ifecycle events鈥�, associated with a derivatives transaction.
Subsequently, the International 网爆吃瓜 Lending Association (ISLA) has been working with ISDA and the International Capital Markets Association (ICMA) to apply a CDM to securities lending transactions, and ICMA has been doing similarly for repo and bond trades. Aligned to this activity, these trade associations have been working to develop digital versions of their market standard master agreements.
In May 2022, the three industry associations which have collaborated to deliver the CDM project issued a tender to meet the requirements of providing a repository for the CDM resources.
The requirements included maintaining the CDM code, facilitating the growth of a community of CDM contributors, and creating governance structures which allow these contributions to be overseen by the associations. On the basis of this request for proposal (RFP) and selection process, FINOS was appointed in September 2022 to provide this repository service, enabling users to access CDM resources as open source.
In line with this agenda, Ian Sloyan, senior adviser, data and digital solutions at ISDA, explains that the recent project focus has been on moving the core of the CDM to the open-source repository at FINOS. 鈥淲e are taking the CDM elements that will be made open source, which is the vast majority of the CDM code, and managing its migration into the FINOS repository 鈥� in doing so, we are aligning with the governance structures that FINOS requires,鈥� he says.
ISDA indicates that it welcomes the opportunity this will offer to broaden the base of CDM contributors and to use the open-source tools and best practices available through FINOS to widen the scope of contributors. 鈥淭o date, many of the contributions to the CDM project have been coordinated through the trade associations and their technology partners,鈥� says Sloyan. 鈥淎s part of the FINOS community, this will enable us to link with a wider range of projects under the FINOS umbrella and to align more easily with industry standards and protocols, including FIX and ISO 20022 standard messaging supported on the SWIFT network.鈥�
Open collaboration
FINOS was established to provide a forum for non-competitive open collaboration between participants in the financial services industry. In pushing this objective, it aims to offer both the open-source tools and the community of users that will propel the development and adoption of the CDM.
In 2020, FINOS staged a pilot programme for submitting changes to the CDM model using Legend, its open data modelling collaboration platform developed initially by Goldman Sachs in collaboration with FINOS and a number of other large global investment banks.
In addition, the FINOS Financial Objects Special Interest Group (FO SIG), led by Goldman Sachs and ISDA, provides a forum for collaboration on data modelling for a range of business use cases, for example carbon credits for energy projects and data lineage of digital assets.
鈥淲e have a successful track record of model development using Legend at FINOS and we are fully committed to establishing an operating model that incorporates both Legend and Rosetta [a language and tool set developed by REGnosys] in the CDM modelling process,鈥� says Ian Sloyan, ISDA鈥檚 senior advisor, data and digital solutions and a co-lead of the FO-SIG.
At a recent Open Source in Finance Forum in New York, ISDA released its Digital Regulatory Reporting (DRR) live in production with one of its association members, BNP Paribas, using code developed using the CDM to meet regulatory reporting obligations under the US Commodity Futures Trading Commission鈥檚 (CFTC鈥檚) revised swap data reporting rules.
In a joint statement released on 18 February 2023, ICMA, ISDA and ISLA announced that the CDM is now available in FINOS under the FINOS Community Specification License 1.0. Further details are available via the FINOS Common Domain Model web page or via the GitHub.
Trade negotiation
ISLA鈥檚 CDM Trading Working Group was established at the end of Q1 2022, providing an open invitation to vendors and other market participants in the trading space to apply the model to their trading solutions and to deliver greater standardisation across securities finance trading activities.
鈥淎s an Association, ISLA has played a role 鈥� alongside ICMA and ISDA 鈥� in facilitating this conversation,鈥� says David Shone, director of digital affairs at ISLA. 鈥淲e identified an opportunity through CDM to standardise trade negotiation workflow, which is our first step into applying the workflow elements of the CDM.鈥�
Now, the CDM Working Group is looking to move beyond the product, transaction and legal components, which have been its primary focus until now, to apply the CDM more widely across the transaction value chain 鈥� recognising that there is great value in applying standardised procedures to operational processes.
In February, the three trade associations held an industry event in London to profile the work that has been done to develop a CDM for the securities financing, repo and derivatives markets, providing opportunity for firms to discuss concrete use cases and to share their experiences in applying CDM.
Mike Lambert from Broadridge and Robert Miles from GLMX presented at this CDM Showcase event, which illustrated the practical steps that the group has done and their work as vendors in turning this into practical application.
This explained the workflow in diagrammatic form and then in coded form through examples using Rosetta, REGnosys' regulatory reporting platform. This use-case employs 鈥減ropose-counter-accept" workflow for trade negotiation. With this, the user can accept a proposal and execute. Alternatively, the user can issue a counter proposal, amending the original and presenting this back to the counterparty for review 鈥� with the proposal going backwards and forwards as many times as required. Or the proposal can be rejected.
This provides a mechanism for automated negotiation between counterparties that largely eliminates manual touch points.
Code reusability
In their CDM work to date, and in their future plans, the trade associations have adopted a deliberate strategy to focus on different parts of the transaction workflow. Chris Rayner, ISLA senior associate for market infrastructure and technology, points out that development work on trading workflow conducted by ISLA is applicable not only to securities lending trades, but may be applied more widely in modelling derivatives, repo and other trade types 鈥� and this is similarly the case for the work done by each of the trade associations. The standardisation offered by the CDM is key to enabling re-use of CDM objects across trade types and use cases.
For ISDA, a core component of its recent CDM development work has been on digital regulatory reporting. The challenge of ensuring that market participants report their derivatives trade data in the correct format 鈥� and maintain accurate and timely trade reporting as regulation is constantly released and amended 鈥� has been a major overhead for the derivatives industry. This has been a key driver for its Digital Regulatory Reporting (DRR) initiative.
This DRR project aims to deliver a standardised data model to guide trade reporting. Rather than each firm creating a regulatory reporting solution based on its own interpretation of the rules, market participants are developing an industry-led standardised interpretation of the regulation as open-source code. In turn, DRR will allow regulators to publish reporting rules as machine-executable code that can be automatically read and interpreted by the IT systems of reporting firms, thereby improving the reporting process across asset classes.
In November 2022, BNP Paribas was the first company to go live with the DRR under the CFTC鈥檚 amended swap data reporting rules in the US, representing the first implementation of ISDA鈥檚 DRR solution in a real-world production-level environment, with trade data submitted to the DTCC鈥檚 swap data repository.
Commenting on this development, ISDA鈥檚 director of data and reporting Andrew Bayley, explains that DRR is live for the CFTC鈥檚 amended swap data reporting rules and ISDA is now working on EU reporting rules under revisions to the European Market Infrastructure Regulation (EMIR), or EMIR Refit. Many of the same firms that participated in the CFTC initiative are involved in the build for the EMIR Refit, with new firms joining on an ongoing basis. This, he suggests, reflects the success of the DRR service and the positive feedback it has generated since BNP Paribas announced it is using the DRR for its CFTC reporting.
Other jurisdictions are now preparing for similar rule rewrites. For example, the Japanese Financial Services Agency (JFSA) has announced it will implement amendments to its derivatives reporting rules in April 2024. Updates are also being made in Australia, Canada, Singapore and the UK.
One of the strengths of the DRR, Bayley believes, is the reusability of code which will help speed up the modelling process. For example, ISDA anticipates that the combined EMIR and CFTC rule set will cover more than 90 per cent of the JFSA requirements.
鈥淚n short, we are no longer starting from scratch for subsequent regulatory implementations,鈥� he says. 鈥淭he development process for the CFTC amendments took just over 12 months, but this could fall to a few months in future. As regulators make further incremental changes, the implementation time could fall to a few weeks or even days, depending on how significant the changes are.鈥�
The DRR can be used in different ways. For example, BNP Paribas is utilising the DRR to generate its outgoing reports. But firms could also use an in-house solution or an alternative vendor to generate their regulatory reports and use the DRR to validate their implementation against the regulatory requirements.
Repo lifecycle
ICMA is set to conclude Phase 2 of its CDM project for repos and bonds close to the end of Q1 2023, enabling users to automate repo processing and to streamline trade reporting.
The Association reports that its focus during Q4 2022 was on finalising technical programming of repo structures and processes into the CDM model. It has been working with REGnosys to capture repo lifecycle events such as interest rate changes, close and reopening of a trade position, and shaping a trade 鈥� splitting a large trade into smaller elements to improve settlement efficiency.
ICMA was approached for an interview for this article, but did not put forward a spokesperson prior to publication. However, SFT understands that the next steps in ICMA鈥檚 CDM project include integrating elements of the General Master Repo Agreement (GMRA) clause library as a foundation for smart contracts and to apply commonalities between the ICMA Common Data Dictionary for primary bond markets and the CDM to facilitate issuance, trading and settlement of DLT-issued bonds.
More broadly, beyond CDM, ICMA鈥檚 DLT Bonds Working Group continues to work to advance the development of nascent DLT bond markets and to liaise with financial supervisors, investors and issuers on raising awareness and understanding of this digital asset class.
Pre-trade accuracy
For ISLA鈥檚 CDM Trading Working Group, one of the next items on the project agenda will be to tackle loan availability. Mike Lambert, securities lending product director at Broadridge Financial Solutions, notes that in assessing loan availability, a firm may receive information from multiple lenders, each of which may employ a different data format and a slightly different definition of what loan availability means. For the recipient, the challenge is to take in this data 鈥� sometimes via API, but often sent as an excel file or via email 鈥� to collate, validate and normalise this data before it can be used as an input for trade negotiation. This data cleansing and validation process is resource intensive 鈥� and the working group is confident that CDM will bring major benefit in standardising data formats and reducing costs of data cleaning.
To date, ISLA鈥檚 CDM Working Group has focused its initial energies on trade negotiation, digital documentation and other pre-trade processes. Lambert explains that its rationale was twofold. By getting the pre-trade elements right, this accuracy and standardisation feeds onwards throughout the trade lifecycle. Second, the pre-trade segment remains a relatively underserved part of the transaction lifecycle and has benefited from a concerted focus within the WG on how to eliminate pre-trade errors and mismatches 鈥� errors that are a frequent cause of downstream processing errors and STP breaks.
By applying CDM from trade negotiation downstream across the lifecycle, this eliminates the risk of mismatches and reconciliation breaks, creating a golden entry point where trade data is booked in standardised format prior to executing the opening leg of the SFT. Delivering standardisation pre-trade means less risk of downstream operational errors and it reduces the reconciliation burden.
In November 2022, ISLA also launched its Document Digitisation Working Group, which is focused on digitising the Global Master 网爆吃瓜 Lending Agreement (GMSLA, relating to title transfer trades) and the 网爆吃瓜 Interest over Collateral (for pledge transactions). This group is administered by D2 Legal Technology (D2LT), but with contributions from key specialists in this space including document negotiation platforms such as SmartDX and Broadridge. Sixteen firms are now participating in this working group.
ISLA鈥檚 David Shone indicates that the group is currently working with the Clause Library and translating this into the CDM鈥檚 data structure. This will facilitate counterparties鈥� ability to negotiate SLB transactions electronically and to create a CDM object that captures the legal terms of the trade, represented in the same model as the trade details and product representations that they govern. This paves the way for further automation of lifecycle events for SLB, repo and derivatives transactions.
The group has outlined the modelling principles, specifying the rules that should be followed. 鈥淲e now have group members actively working to model their own agreement clauses,鈥� says Shone. 鈥淲ith multiple firms contributing, each is gaining modelling experience, applying the CDM principles to their own use cases and keeping the project advancing at good speed by sharing the development workload.鈥�
CDM repository
In February, the three trade associations migrated the CDM code into the FINOS repository and this is now available as an open-source resource. Some administrative details are still to be finalised, notes ISDA鈥檚 Sloyan, but the CDM code is available to users via the FINOS GitHub common domain model page.
The inaugural CDM meetings at FINOS took place on 14 March and these CDM meetings are open sessions that can be attended by interested parties from across the FINOS community. There will be subsequent FINOS meetings to build, agree and maintain the code on an ongoing basis.
For collateral management, CDM development activities will be coordinated through a Collateral Working Group that will be administered by FINOS. Participation will be open to any firm that wishes to attend from the FINOS open source community.
As co-lead of the FINOS Financial Objects Special Interest Group (FO-SIG), Sloyan indicates that ISDA鈥檚 focus to date has been principally on the DRR and it has not yet had opportunity to make big commitments to other use cases. However, through the FO-SIG, he notes that there is an ongoing dialogue on sustainability data and integrating that with the financial infrastructure, as well as standardisation of data elements to support the trade lifecycle for digital assets.
鈥淲e are confident that FO-SIG will provide a space where participants can discuss new ideas, and then those ideas can become reality, if applicable, via the CDM governance structures or through other projects at FINOS or elsewhere,鈥� says Sloyan.
Outside of the DRR, Sloyan indicates that the primary focus for FINOS will be on collateral. Initially, this will centre on the development of digital collateral eligibility models that are built on CDM formats and will lower eligible collateral negotiation times, improve interoperability and streamline user onboarding by enforcing a standardised data structure.
Preliminary work is also ongoing to support further automation of interest calculation and processing for cash collateral, automating collateral calculations and movement of funds while reducing settlement fail rates.
Steps to improve data reconciliation are inherent to the CDM and this model will be applied to support automated portfolio reconciliation and collateral dispute resolution. By enforcing standardisation of data requirements, this provides opportunities for users to focus on mismatches and to deliver genuine exception-based workflow.
Production use-cases
Arguably, the CDM project is now reaching a tipping point where it has moved beyond proof of concepts to real-life production examples, where the securities finance community can see concrete applications of the CDM in live use cases and can identify this as a benefit to their company and to the industry at large.
鈥淔irms may recognise, for example, that had CDM already been in place at the time that the 网爆吃瓜 Financing Transactions Regulation (SFTR) was implemented, their preparations for SFTR would have been much more straightforward,鈥� says Broadridge鈥檚 Lambert. 鈥淏y the same token, we believe that having CDM in place will make it significantly easier to prepare for future regulatory adaptation.鈥�
For ISDA鈥檚 Bayley, the time and resources committed to regulatory adaptation in recent decades has been enormous and broadly unsustainable. Financial supervisors recognise this and are focusing on steps to accelerate this process and reduce costs. The UK Financial Conduct Authority's (FCA's) Transforming Data Collection initiative provides one example. In the EU, regulators are engaging with the industry to promote machine-readable and executable regulatory reporting.
鈥淣o matter how regulators label these initiatives, it is likely they will promote standardised data models that look much like the CDM and deliver solutions that look much like ISDA鈥檚 DRR initiative,鈥� concludes Bayley. ISDA, ICMA and ISLA, as trade associations, are at the forefront in promoting CDM-based data modelling that will benefit financial regulators and the industry at large.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to 网爆吃瓜 Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to 网爆吃瓜 Finance Times
