Barclays said it has tested a way to trade derivatives using blockchain-like technology being developed by a consortium of the world’s leading banks. Derivatives, trading contracts between two or more parties that can take many forms and are based on an underlying asset, are now being made up of three main parts with a body called the International Swaps and Derivatives Association (ISDA) creating the standards across the financial world for derivative trading. But the process is arduous with current paper contracts in the form of computer documents still being issued. The new method, described as a ‘smart contract’ is a computer program that can automatically execute the terms of a contract when certain conditions are met, potentially taking a lot of the human involvement out of completing a deal. Barclays created a smart contract, an electronic document whose fields could be pre-populated with certain values agreed by the ISDA. This way, all the banks will have the same document which will not vary slightly from bank to bank, something that can cause delays and unnecessary human intervention. The banks involved could then populate the fields with the terms of the derivatives agreement such as the price with any changes being recorded. Those can then be seen online. Previously, a bank would have to search through its inbox or pile of documents to find an earlier version of the draft.
