Algorithmic Descriptions Regulation - White Paper - CFTC/SEC: Joint Study on the Feasibility of Mandating Algorithmic Descriptions for Derivatives - April 7, 2011

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Dodd-Frank Timeline, Feasibility Study on the Adoption of Standardized Computer-readable Algorithmic Descriptions
Proposal Date Comment Deadline Study Issued
December 9, 2010 December 31, 2010 April 7 2011


April 7, 2011

One of the mandates of the Dodd-Frank Act was a requirement that the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) jointly study the feasibility and logistics of adopting standardized, computer-readable algorithmic descriptions to describe complex financial derivatives, and whether these descriptions, combined with "standardized legal definitions, may serve as the binding legal definition of derivative contracts."[1]

Staff concluded:

  • current technology is capable of representing derivatives using a common set of computer-readable descriptions. These descriptions are precise enough to use both for the calculation of net exposures and to serve as part or all of a binding legal contract.
  • 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.

A copy of the study can be found below.


References

  1. CFTC-SEC delivers report on mandating algorithmic description for derivatives. CommodityOnline. Retrieved on April 11, 2011.

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