Isda Seeks to Standardize Derivatives Tech with REGnosys Partnership

Isda is hoping that the CDM will bring increased automation and efficiency to the derivatives market, and has tapped a fintech startup, REGnosys, to lead the project.

Blocks

  • Isda hopes that the creation of a digital CDM will help to increase automation and efficiency in the derivatives market, which is much needed.
  • Additionally, as new technologies increasingly permeate the marketplace, it’s important that the derivatives space doesn’t fall too far behind.
  • While this is potentially a big step forward for the industry, the real question is whether or not the various players in the derivatives market, including the regulators, buy into Isda’s vision for what’s best going forward.

One of the industry's most powerful lobby groups has teamed up with a fintech startup to develop common standards for emerging technologies in the derivatives markets. The first results are expected within weeks, executives say.

In the capital markets, cloud-based tools—with an increasing reliance on public cloud infrastructures—are ubiquitous. At the same time, 2018 promises to be the year of live implementations of platforms built using distributed-ledger technologies—such as blockchain—and of the use of smart contracts. Each new technological advancement presents both new opportunities and significant challenges.

In an attempt to get ahead of the problem—or at least catch up—the International Swaps and Derivatives Association (Isda) is developing a digital version of its Common Domain Model (CDM), which the organization hopes will serve as “the bedrock of standards” upon which new technologies can be rolled out.

To build it, Isda has selected fintech startup REGnosys. Ian Sloyan, director of market infrastructure and technology at Isda, tells WatersTechnology that the vendor—which specializes in the regulatory technology (RegTech) space—beat out about 15 other competitors after ISDA put out a request-for-quotation. He says that two particular aspects of the REGnosys offering stood out—its understanding of the Financial products Markup Language (FpML), and its use of open-source technology.

“We believe REGnosys has exemplary expertise in modeling with standards like FpML, which was very attractive to Isda,” he says. “[And] because their Rosetta workbench is built on open-source tools, it should make it even easier for our members to do their own analysis of the output of work during the engagement. We are quite impressed by the platform that they’ve put together.”

New Blood

REGnosys was founded by two Goldman Sachs alumni—Leo Labeis, REGnosys’ chief executive, and Pierre Lamy, REGnosys’ chief operating officer, who was also previously the chairman of the Isda FpML Standards Committee.

Even though the company is a fintech startup—competing in a space that includes exchanges and clearinghouses, post-trade specialists like IHS Markit, the Depository Trust and Clearing Corporation and Nex Group, and software specialists such as Murex, Calypso, FIS and ION Investment Group—the pair’s background in the derivatives space combined with their platform that was built incorporating new engineering practices helped to sway Isda, says Hugh Stewart, an industry analyst familiar with REGnosys.

“They have combined best practices and initiatives in derivatives data engineering combining data and events; this is the more innovative—but not original—development within Isda’s draft abstraction layer that CDM is based on and puts importance on events rather than just data, like FPML, and defines events as being dependent and independent,” Stewart says. “Most attractive in REGnosys is their product Rosetta which was open-sourced from day one that is a data engineering representation of the derivatives world including events, processing and rules and, most important and differentiated, is an automatic generation of programmatic code that use natural language-like interfaces. They describe it operating like a ‘digital map,’ but this also gives them a dynamism which reflects that of the market.”

To begin, REGnosys will focus on the rates and credit asset classes as it produces a framework for a digital representation of the CDM, the first iteration of which they hope will be unveiled after about 12 weeks of testing and validation. In addition to its members, Isda is looking to engage with blockchain and smart contract providers so that they can better understand how the CDM will work in real-world situations, and where improvements will need to be made.  

“We have a very agile approach to the development of the Isda CDM. We’re talking to our members on a much more regular basis as to what we want to focus on in these first few weeks,” Sloyan says. “We hope to have our first model of a very basic product built from the data within a couple of weeks and that will serve as the basis from which we move forth. The members involved will see things produced on a weekly basis. We’re trying to do this in more of an agile fashion than Isda or industry projects have been able to work in the past.”

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