In a new publication, ISDA explores the benefits of digitization and blockchain solutions for global foreign exchange derivatives markets.

By Yvette D. Valdez, Adam Bruce Fovent, and Deric Behar

As blockchain and distributed ledger technology (DLT) use cases continue to grow across the broad spectrum of financial markets, the International Swaps and Derivatives Association, Inc. (ISDA) is once again stepping into the crossroads of technology and derivatives with the publication of the ISDA Legal Guidelines for Smart Derivatives Contracts: Foreign Exchange Derivatives (the Guidelines).

By Andrew Moyle and Stuart Davis

The Project Stella report, a European Central Bank (ECB) and Bank of Japan (BOJ) joint venture, details the applicability of distributed ledger technology for financial market infrastructure. During a one-month research project, the central banks tested whether distributed ledger technology (DLT) could sustain the liquidity saving mechanisms — a system introduced in 2013 to ensure the liquidity of banking institutions — in their current real-time gross settlement systems (RTGS).

Published in September 2017, the report concluded that DLT solutions have the potential to increase the resilience and reliability of financial transactions and are scalable to meet the needs of large value payment systems, but they have not yet reached the level of maturity needed to replace the RTGS that the ECB and BOJ currently use. The findings on the scalability of DLT are important, because regulators such as ESMA and FCA have previously questioned whether DLT could be scalable enough to meet the needs of the financial market infrastructure.