Machine-Readable OTC Swaps Contracts One Step Closer: Study

The technological framework is in place for industry watchdogs to require that over-the-counter derivatives contracts be automated, according to a joint study by the nation’s equities and commodities regulators.

Last summer the Securities and Exchange Commission teamed with the Commodity Futures Trading Commission on a study aimed at finding out how feasible it would be for them to mandate the industry adopt machine-readable algorithms that could describe and standardize complex derivatives contracts.

After nearly eight months of research, the agencies concluded that current technology is advanced enough to use algorithmic descriptions of derivatives to calculate net exposures and to serve as the basis for legally binding contracts. But before requiring such automation, the study recommended “a uniform way to represent financial terms not covered by existing definitions” be implemented.

The regulators also said there needs to be more analysis of the “costs and benefits of having all aspects of legal documents related to derivatives represented electronically.”

As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio