Data Standardization Subcommittee of the 

CFTC’s Technology Advisory Committee 

Working Group 2 – Machine-Readable Legal Documents

Interim Recommendations to the Technical Advisory Committee

December 13, 2011

September 2010
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Working Group 2 – Machine-Readable Legal Documents – Interim Recommendations - December 13, 2011

Working Group Members and Recommendation Highlights

 Recommendation Highlights:

 Transactional Legal Agreements - Complex & Bespoke Products  Adoption of the Generic Product data 

representation to equip regulators with an appropriate level of information while preserving the ability of the 

marketplace to innovate.

 New Portfolio Legal Agreements  Leverage the ISDA Standard Credit Support Annex (“CSA”) initiative to create a 

highly “standardized” data representation of the ISDA CSA. Explore possibility/options for electronic execution.

 Legacy Portfolio Legal Agreements  Finalize an industry-wide survey to identify Legal Agreement information 

relevant to systemic risk. Survey will confirm scope, feasibility and collate information relevant to a cost-benefit 

analysis. Work will continue into 2012.

Working Group Members Working Group Coordinator and Government 

Representatives

Pierre Lamy, Goldman Sachs Nancy R. Doyle, CFTC

Paulo Rodela, BlackRock Solutions Walter Hamscher, SEC

Michael Will, Innodata docGenix LLC Bill Nichols, Office of Financial Research, U.S. Treasury
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Working Group 2 – Machine-Readable Legal Documents – Interim Recommendations - December 13, 2011

Transactional Legal Agreements - Complex & Bespoke Products

 The recommendation: The Generic Product representation

 A widely-adopted simplified data representation used for trade processing and reporting purposes until such time 

as a product has reached an appropriate level of maturity for data standardization.

 Approach will equip prudential regulators with an appropriate level of information, that can be expressed using 

the same data protocol as standardized products:

 A cost/benefit analysis shows that such approach provides a progressive path, with a good cost-benefit 

outcome

 Reduced time-to-market and cost for non-standardized products, preserving the ability to innovate.

 Limited downside for prudential regulators, until such time as they desire to compute risk and valuation analysis.

 Progressive solution, as the same data representation protocol can be used throughout the product innovation 

lifecycle.

 Industry feedback has been extremely positive and supportive.

Functional Category Generic Product Representation

Operational data Same as standardized trades negotiated and confirmed non-electronically.

Product information Taxonomy classification will be provided, but not the UPI.

Transaction economics Basic information.

Valuation data Same as standardized trades.

Counterparty information Same as standardized trades.

Underlyer information The data structure exists. Its usage may differ across products.

Event data While the FpML structure exists, its usage may be limited in practice.
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Working Group 2 – Machine-Readable Legal Documents – Interim Recommendations - December 13, 2011

New Portfolio Legal Agreements – The Standard CSA Initiative

 The ISDA Standard CSA initiative

 The ISDA Standard Credit Support Annex (“SCSA”) initiative is a standardized version of the widely used English 

Law and New York Law ISDA CSA.

 The SCSA will provide the following benefits for market participants:

• Align the mechanics and economics of collateralization between the bilateral and cleared OTC markets, resulting in 

more consistent pricing and a reduced risk and cost of hedging.

• Simplify the processes associated with such terms, and reduce margin disputes resulting from pricing differences 

among participants.

• Facilitate the integration of collateral terms into the pricing tools as a result of the elimination of complex bespoke 

clauses.

 The recommendation: aim for an electronic data representation

 The intent of the SCSA Committee chairs is to have draft New York Law and English Law forms of CSA finalized 

in the early part of Q2 2012.

 The FpML Standards Committee is evaluating the possibility of forming a working group to develop an 

electronic representation of the SCSA.

 Electronic execution of the SCA will require complex legal analysis but will ensure that the executed SCSAs 

remain true to the principle of “standardization”.
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Working Group 2 – Machine-Readable Legal Documents – Interim Recommendations - December 13, 2011

Legacy Portfolio Legal Agreements – Legacy Documents

 The problem

 Despite the existence of industry standard documentation, the prevailing bilateral negotiation process has 

resulted in an infinite variety of legal clauses (“Legal Clauses”) that are difficult (but not impossible) to 

represent electronically. By way of example:

 Proposed Approach

 Evaluate the opportunity to define a progressive path to electronically represent the Legal Clause data that is 

of most value to regulators from a systemic perspective.

 To be successful, a pragmatic and realistic approach will need to be adopted, which also takes into 

consideration a thorough cost/benefit analysis for market participants.

 Initial scope should be well defined and limited. The concepts contained in Legal Clauses are multi-dimensional 

and involve many data points.

 Status

 The Working Group is finalizing an industry survey to assess the current capabilities of market participants and 

evaluate the feasibility and cost/benefit of electronically representing Legal Clause data.

 Plan is to conduct the survey early next year.

Legal Clause Text Machine-Readable Data Representation

o ... is downgraded below A-.

<trigger>BBB+</trigger>

o ... ceases to be rated at least A-.

o ... is downgraded to BBB+ or below.

o ... is rated BBB+ or below.