But these technologies are at the relatively early stage of development, and there is still a lack of agreement on what a smart contract is, what role it can play in the derivatives market, and how it might interact with existing legal standards and documentation.

To provide some clarifications on these topics, on 3 August 2017 ISDA published a white paper that sets out what smart contracts and DLT are, how they might be used in a derivatives context, and what the legal considerations are. Key points include:

• There is a difference between smart contract code, which refers to code that is designed to execute certain tasks, and a smart legal contract, which refers to elements of a legal contract being represented and executed by software.
• Certain operational clauses within legal contracts lend themselves to being automated. Other non-operational clauses – for instance, the governing law of a contract – are less susceptible to being expressed in machine-readable code. Some legal clauses are subjective or require interpretation, which also creates challenges.
• A possible near-term application of a smart contract is for the legal contract to remain in natural legal language, but for certain actions to be automated via a smart contract.
• This would require those actions – for instance, payments and deliveries – to be represented in a more formal, standard way within the ISDA De nitions, enabling them to be read by machines.
• Transaction data could be held on a permissioned, private distributed ledger that would be available to regulators. is would ensure there is a single, shared representation of each trade.
• Industry wide standards are required to ensure smart contracts are interoperable across rms and platforms. ISDA is working to develop these standards.