ISDA sets out global framework for crypto trading

The ISDA published guidance for trading digital asset derivatives to clarify what happens when things go wrong in an underlying market, such as the collapse of crypto exchange FTX

An industry body set out a global framework on Thursday for trading derivatives linked to crypto assets to avoid FTX-style collapses creating confusion over ownership.

The International Swaps and Derivatives Association (ISDA) published guidance for digital asset derivatives trading to clarify the developments when things go wrong in the market, like the collapse of crypto exchange FTX.

While most of the recent troubles have taken place in the spot crypto currency market, many of the legal uncertainties could have an impact on digital asset derivatives as well.

International Swaps and Derivatives Association already oversees the ‘master agreement’ or template used by banks to trade trillions of dollars in derivatives worldwide.

It will now include ISDA ‘s first standard documentation for digital asset derivatives trading, initially covering non-deliverable forwards and options on Bitcoin and Ether.

It could be expanded in future to cover more product types such as tokenized securities and other digital assets executed on distributed ledger technology (DLT), ISDA said.

The framework sets out the rights and obligations of both parties to a derivatives trade after market disruption, and ISDA also published discussion papers covering legal questions which rose after FTX’s bankruptcy.

Customer assets worth billions of dollars were lost as a result of FTX’s collapse raising questions about the ownership of assets held by a crypto exchange or intermediary.

Recent crypto market failures have stressed the importance of having a clear, consistent contractual framework that clarifies the rights and obligations of both parties after a default, said ISDA chief executive Scott O’Malia.

He said: All customers, retail or institutional, should know their assets are protected and understand their rights in the event of a default.