The CFTC and the SEC have delivered to Congress a joint staff study on “the feasibility of requiring the derivatives industry to adopt standardized computer-readable algorithmic descriptions that may be used to describe complex and standardized financial derivatives” (see Title VII, Sec. 719(b) of Dodd-Frank). Based on the public input, staff investigation and analysis, the joint study concludes that current technology is capable of representing derivatives using a common set of computer-readable descriptions. These descriptions are precise enough to be used both for the calculation of net exposures and to serve as part or all of a binding legal contract.
The study also concludes that before mandating the use of standardized descriptions for all derivatives, the following are needed: a universal entity identifier and product or instrument identifiers, a further analysis of the costs and benefits of having all aspects of legal documents related to derivatives represented electronically and a uniform way to represent financial terms not covered by existing definitions.
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