A First for Derivatives Markets
Anyone familiar with the history of the derivatives market will be able to tell you when the first swap was negotiated – in 1981, between IBM and World Bank. Thirty-eight years on, the market has seen the latest important landmark: completion of the first fully electronic negotiation of relationship-level swaps documentation between two counterparties.
Commerzbank and Nomura are behind this new milestone, having agreed initial margin documentation via ISDA Create, a platform for the electronic negotiation and execution of derivatives documents. With 53 buy- and sell-side firms now signed up to use ISDA Create, they won’t be the last.
The derivatives market has come a long way from that first IBM/World Bank swap. In the early days, the lack of an agreed set of definitions and standard terms meant it could take weeks or even months to thrash out even the most general documentation terms on a bilateral basis. ISDA was set up to change that, and to develop standard contractual language that everyone could agree on. The ISDA Master Agreement marked an important turning point in bringing greater efficiency to the derivatives market. Today, we are focusing on delivering all of our contracts in a digital format. ISDA is committed to providing a digital pathway for all documents and definitions, and to establish a common taxonomy for lifecycle events.
ISDA Create is the latest step in that mission of fostering efficiency and standardization. Launched in January 2019 with an initial margin module, the service allows users to deliver documentation electronically to multiple counterparties simultaneously, and to negotiate those agreements completely online. Other documents will be added to the platform over time, starting with custody agreements, the schedule to the ISDA Master Agreement and variation margin documentation.
As the industry works to comply with the final phases of the non-cleared margin requirements over the next two years, this platform will bring efficiency to the negotiation process and allow firms to digitally capture, process and store the resulting data. Like the ISDA Master Agreement, ISDA Create streamlines and standardizes the more mundane operational and legal aspects, enabling participants to focus on the more bespoke elements of the relationship.
It’s still early days, but we are very excited about the possibilities. Just as the first swap between IBM and World Bank set the path for a vibrant derivatives market, the Commerzbank/Nomura negotiation is a sign of things to come as firms look for ways to drive efficiencies in their business.