Where in the World is Your Transaction on a DLT?
ISDA have published a new paper entitled "Private International Law Aspects of Smart Derivatives Contracts Utilizing Distributed Ledger Technology". Sounds like a big deal and it probably is.
- Parties to an ISDA Master are free to elect the governing jurisdiction for their trades
- In the paper the example is a permissioned ledger (Corda) where all parties are known and tied back to nodes on the network
- The paper makes clear that an open access permissionless ledger would bring uncertainty and be an unlikely place to record OTC transactions
- The paper considers two scenarios a) an uncollaterised swap and b) a collateralised swap
- Scenario B) matters when securities are pledged to cover exposure and a corresponding record is made on the ledger. And in a sub-scenario where the ledger records an asset like a cryptocurrency coin as collateral
- In summary the law already has many mechanisms to establish which court a dispute would be heard in.
- For ISDA OTC transactions the use of a DLT doesn't have a material effect on the law. In small cases the location of the operator of a ledger may be relevant.