ISDA Common Domain Model: Get In Tune

The ISDA Common Domain Model (CDM) is a digital representation of the events and actions surrounding derivatives trading, a standardisation initiative that ISDA has been working on for a few years. Version 2.0 of the CDM included an initial representation of the ISDA Credit Support Annex, and this caught our attention at Logical Construct.

I’ve spent a large part of the past 20 years working on systems that need information from the CSA and other collateral documents. Enhancements to collateral, optimisation and risk systems depend on access to the granular data that is defined in these contracts. Getting it off the page and into a database has been a repeated challenge, along with mapping it to a variety of vendor and proprietary data formats. The data mapping exercise is a time consuming and unappetising prospect, but unavoidable in the absence of an industry-standard model.

In the early days the focus was on the precise data points needed by each target system – the same terms keyed-in multiple times in different ways. If the actual terms specified in the contract didn’t quite fit, they were simplified so that they did. With a complex rating or NAV based threshold you might just capture the current value; for a particularly dense or obscure collateral definition it was a case of ‘best efforts’.

Following the financial crisis this was less acceptable, but the problem with trying to define a sufficiently flexible data model up front becomes apparent when used across decades-worth of real-life contracts. It’s not just the ISDA CSA you have to deal with, you need to cater for Repo and Securities Lending agreements along with domestic equivalents such as the Spanish, French and German agreements. A contract-centric view is essential (data quality depends on being able to link back to the source) as is a single representation for a common concept across all those agreement types.

We have evolved our model over tens of thousands of documents and multiple projects and clients, and there is enormous value in having a database of all your contract data in a structured format, linking directly to the original document. Having said that, it’s only when the collateral, risk and trading systems consume it that the full value is realised. The ISDA CDM has the potential to be the lingua franca, enabling interoperability between the legal contracts and the business systems.

By making the CDM freely available, ISDA is actively encouraging widespread adoption. Extending the CDM to cover the full suite of ISDA Credit Support documents (legacy, IM, VM) is a positive development, as is recent news of a collaboration with ISLA to add components for securities finance transactions. The unwelcome need for data transformation projects has been a blight on innovation in this area, but the end may be in sight.

Paul.