Smarter Derivatives Market and DerivHack 2018

Event

Objectives

Our objective was to implement the ISDA CDM through emerging technology enablers to solve for representative use cases in post-trade processing. The host, Barclays, set challenging use cases to simulate the derivatives market and provided sample trade data in ISDA CDM representation to achieve them.

Results

We got awarded for designing an application for the smarter derivatives market based on DLT (Distributed Ledger Technology).

Year

2018

Our colleagues, awarded for their DLT application

The Challenge

The International Swaps and Derivatives Association (ISDA) has a new standard that defines the processes for derivatives transactions (such as interest rate swaps and credit default swaps). It has brought CDM — a common foundation for new technologies to be implemented like distributed ledger, cloud and smart contracts for improving data consistency.

Barclays DerivHack aimed to accelerate the adoption path of the distributed ledger technology that could lead to potential $2.5 billion cost savings for the industry.

There were five assignments during the hackathon:

Setting up counterparties on the platform.
Creating new trades (rate swap and credit default swap) and establishing additional counterparties.
Creation of trade events such as a notional change, 3 and 4-way novations, partial & full terminations, rate resets, accruals and fee payments.
Providing settlements with payment netting.
Reporting on trades for a specific trade date, or the life history of a single trade.

The Solution

As INDUSTRIA has been mainly technology-oriented, we wanted to see the implementation of Corda in a different real-world scenario, namely the derivatives market, and get some valuable insights.

Our team managed to complete three of the given tasks. More than that, we developed:

Contract validation governing the evolution of the trade (as a state in Corda).
A simple user interface, using Python and Nginx plus knockout screens with jQuery.
We started working on CDM extension through the contract and flow unit tests.

Last but not least, receiving the award for ‘Best Pitch’ motivated us to invest more time and energy both in Corda and in the exploration of the CDM model.

python
jQuery
nginx
corda

Key Takeaways

CDM demonstrated its potential to become an industry standard.
Corda DLT, the open-source platform by R3, is applicable for the creation of derivatives applications to run transactions across each other without compromising privacy and security.
INDUSTRIA is the right partner to accelerate the adoption path.
The efficiencies with the implementation of the DLT could potentially save the sector $2.5 billion a year.
Other industries (including non-financial ones) could similarly benefit from hackathons.

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