Preview

Digital Law Journal

Advanced search

Smart contracts in OTC derivatives trading: Legal aspects

https://doi.org/10.38044/2686-9136-2020-1-3-51-64

Abstract

The articles focuses on opportunities and problems connected with implementation of smart contracts into “over-the-counter” derivatives trading. The importance of success of professionals who work on this cannot be underestimated: the volume of “over-the-counter” derivatives market is huge, its automatization and transparency provided by implemented smart contracts could dramatically increase its economic efficiency. In this study, the author aims at answering the following question: what aspects of “over-the-counter” derivatives trading could take a quantum leap because of the implementation of smart contacts and, per contra, what aspects could not benefit from implementation of underlying technologies at all.
The author starts with the overview of “over-the-counter” derivatives market, investigates the matter of its internal design, main features and the structure of legal documentation used by market participants. Then the article provides the analysis of smart contract phenomenon, summary of its engineering aspects and difficulties connected with the implementation of smart contracts as a practical matter, including underlying legal issues. The third part is a synthesis of ideas indicated in previous parts. Herein the author examines the perspectives of adoption of smart contracts in “over-the-counter” derivatives trading, identifies the problems that cannot be resolved yet: different parts of legal relations existing between market participants shall be structured in a flexible way and shall be subject to revision under specific conditions. Smart contracts in their turn cannot be considered as a flexible tool and the revision of their terms requires the input from highly experienced specialists that dramatically increases the costs of their implementation and maintenance.
As a matter of conclusion, the author gives recommendation to potential developers of smart contacts to implement them only in relation to the automatization of payments and deliveries as at the moment the clearing can be considered as the most appropriate area for the implementation and use of smart contracts.

About the Author

Kirill A. Bobkov
Moscow Branch of Sova Capital Limited
Russian Federation

Kirill A. Bobkov — Master of Laws, junior lawyer 

5, Koroviy Val, Moscow, 119049



References

1. Harding, P. C. (2010). Mastering the ISDA master agreements (1992 and 2002): A practical guide for negotiation (3rd ed.). Financial Times Publishing.

2. Cable, V. (2009). The storm: The world economic crisis and what it means. Atlantic Books.

3. Johnson, C. A. (2005). A guide to using and negotiating OTC derivatives documentation. Institutional Investor Books.

4. Szabo, N. (1996). Smart contracts: Building blocks for digital market. https://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart_contracts_2.html

5. Clack, C., Bakshi, V., & Braine, L. (2016). Smart contract templates: Foundations, design landscape and research directions. Computer Science: Computers and Society. ArXiv. https://arxiv.org/abs/1608.00771

6. Clack, C. D. (2018). Smart contract templates: Legal semantics and code validation. Journal of Digital Banking, 2(4), 338–352.

7. Clack, C. D. (2018). A blockchain grand challenge: Smart financial derivatives. Frontiers in Blockchain, 1(1), Article 1. https://doi.org/10.3389/fbloc.2018.00001

8. Lord Collins of Mapesbury (Ed.). (2018). Dicey, Morris and Collins on the conflict of laws (15th ed.). Sweet & Maxwell.

9. Corbin, A. L. (1917). Offer and acceptance, and some of the resulting legal relations. Yale Law Journal, 26(3), 169–206. https://digitalcommons.law.yale.edu/ylj/vol26/iss3/1

10. Stankovska, A. (2017). Global derivatives market. SEEU Review, 12(1), 81–93. https://doi.org/10.1515/ seeur-2017-0006

11. Blundell-Wignall, A., & Atkinson, P. (2011). Global SIFIs, derivatives and financial stability. OECD Journal: Financial Market Trends, 2011(1). https://www.oecd.org/daf/fin/financial-markets/48299884.pdf


Review

Views: 3700


Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 License.


ISSN 2686-9136 (Online)