ISDA CEO Forms Digital Assets Task Force to Standardize Crypto Derivatives Contracts



United States: ISDA CEO Forms Digital Assets Task Force to Standardize Crypto Derivatives Contracts

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ISDA CEO Scott O’Malia highlighted the need to develop uniform legal standards for crypto derivative contracts. In an ISDA blog, “derivatiViews,” Mr. O’Malia said ISDA has formed a digital asset documentation task force to explore the topic.

Mr O’Malia said that the current reliance of financial institutions on amended versions of ISDA documentation or tailor-made agreements to trade digital asset derivatives is problematic as it results in a lack of standardization that results in ( i) increased risk and (ii) reduced transparency and liquidity. As with interest rate, currency and equity derivatives, Mr. O’Malia said different legal standards should be developed for different crypto products. He pointed out that these standards may take into account, inter alia, (i) the scope of the products traded, (ii) the timing of the valuation (considering that digital assets are traded 24 hours a day), (iii) l ‘effect of the transaction fees, and (iv) the form of settlement (that is to say, cash settlement or physical settlement).

Mr. O’Malia said ISDA’s new digital asset legal and documentation working group has started to explore these issues. In addition, Mr O’Malia said the task force intends to release a document by the end of 2021 that outlines a path towards developing standards and improving market efficiency. derivatives of digital assets in a manner that complies with current digital standards. platform development.

Remark Sebastien Souchet

Given the speed with which digital asset markets are developing, especially with regard to derivative products, the advent of an industry task force to standardize the documentation of digital asset derivatives is timely. Plus, it’s solid proof that digital asset markets are becoming more mainstream and institutionalized.

Mr. O’Malia identified a number of important issues that will be considered by the working group in its efforts to develop standardized documentation for digital asset derivatives, including considerations specific to the use of blockchain technology. (for example, the appearance of a hard or soft fork). In addition to the considerations outlined by Mr. O’Malia, a few other factors that it might be prudent to consider include: (i) whether differences in the risk and liquidity profiles of the reference assets justify separate documentation based on the type of reference asset; (ii) the uncertainty surrounding the regulatory status of digital assets in general, including jurisdictional differences in regulation; (iii) how to determine acceptable forms of collateral for digital assets, particularly in the event of a drop, fork or other technological issue; and (iv) mechanisms for price and valuation disputes, particularly when it comes to emerging markets or poorly traded products.

Ultimately, interested parties should pay close attention to the developments emerging from the new working group, as the group’s efforts will most likely be helpful in better understanding the issues related to digital asset derivatives markets in general.

Cadwalader Steven lofchie
contributed to this comment.

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