Push for machine-readable contracts poses problems

Regulators want more automation in the over-the-counter derivatives market, but that means much of the documentation will need to be machine-readable. Attempts to establish new standard identification codes are under way, but this is just the tip of the iceberg. Clive Davidson reports

In an ideal scenario, the over-the-counter derivatives market would run like a well-oiled machine. The majority of contracts would be traded and confirmed electronically, and be automatically farmed out to a central counterparty for clearing and settlement. Key transaction data would then be filed with repositories – giving global regulators a complete and readily available set of records that could be used to spot any increase in systemic risk. That’s the world envisaged by the Dodd-Frank Act