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ISDA’s O’Malia: Emerging Digital Market Needs “Strong Foundation” to Develop Crypto Derivatives Standards
Further growth in the popularity of crypto assets is almost certain, but the challenge will be to ensure that the emerging market for digital asset derivatives is on a solid footing, said Scott O’Malia, CEO of International Swaps. and Derivatives Association (ISDA). discuss cryptography and the importance of its associated over-the-counter (OTC) derivative issues.
O’Malia made this comment in ISDA’s post, derivatiViews, in which he also detailed the purpose of the association’s new digital asset legal and documentation working group, which will explore and create standards. respecting the unique aspects of the crypto asset class and capable of being applied. in a fully digital format.
The new working group will focus on the development of specific legal standards for crypto derivatives, in the same way that ISDA has already done for interest rates, currencies, stocks, credit and derivatives. on raw materials.
“Crypto assets have grown at a fierce rate in recent years, but banks and institutional investors have played only a small role in that growth,” O’Malia said. “I look forward to engaging with the crypto community as we resolve the various issues.”
Currently, institutions that trade in digital asset derivatives typically use a modified version of existing ISDA definitions and models or fully tailor-made documentation developed in-house.
“It’s not ideal,” O’Malia said, “which translates into a lack of standardization which can ultimately hamper transparency and liquidity and lead to higher levels of risk.”
The working group will also consider other critical legal issues, including the scope of the product, the timing of the assessment – given that digital assets trade around the clock – as well as the impact of transaction fees and charges. implications of whether a transaction is settled physically or in cash.
“Addressing these topics is the starting point for developing standard market documentation which is essential for legal certainty, as well as ensuring that robust processes are in place to deal with market disruptions or failures,” O said. ‘Malia.
He concluded: “As the crypto derivatives market continues to grow, it will become increasingly important that a strong framework is in place that improves transparency and consistency and reduces risk.”