ISDA CEO Scott O'Malia described ISDA's ongoing effort to develop common contractual standards to support the digital asset derivatives market.
In comments published in ISDA's newsletter, derivatiViews, Mr. O'Malia emphasized the need for standardized derivatives documentation tailored to reflect the unique features of this asset class.
Mr. O'Malia stated that institutions trading digital asset derivatives are currently using amended versions of existing ISDA templates, or are using their own bespoke documentation. He warned that this lack of common contractual standards may mean that certain unique events that can occur in the digital asset market are not directly covered by the documentation used for derivatives linked to those assets. Mr. O'Malia cautioned that the lack of common contractual standards may result in failure by market participants to address the distinctive events that can occur in the digital asset market, such as certain market disruption events that may impact the valuation, settlement, collateral and legal viability of a derivatives transaction.
Mr. O'Malia said that the development of common contractual standards and documentation templates for digital asset derivatives is a priority for ISDA in 2022, and will largely focus on (i) addressing the issues highlighted in a white paper previously published by ISDA regarding the creation of contractual standards for digital asset derivatives (see previous coverage), and (ii) integrating those standards within the existing ISDA documentation architecture, particularly the ISDA Master Agreement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.