Every time a new OES relationship is established, the same legal questions need to be resolved. Currently, there is a lack of standard answers. The questions mostly focus on three areas:
The first is what happens to pledged assets in the event of exchange failure. Inevitably, this is the one teams are rightly focused on for every counterparty relationship they enter, across every agreement type. OES agreements are being written in that environment, and the answers in most current contracts are not as clear as they should be.
The second is disputes. What is the process when counterparties disagree on a settlement? Most current agreements are vague. Vague means slow, and slow is expensive, particularly for operational teams who deal with this more often than legal teams anticipate.
The third – is agreeing standard definitions – before any of the more complex negotiations can even be resolved.
While these are edge cases – operationally speaking – they are foreseeable scenarios that every OES agreement will eventually face. The fact that each gets negotiated differently, every time, from scratch, is where a significant amount of time and money disappears.
At BridgePort, every day we think about how to reduce risk, and costs, for market participants throughout the trade lifecycle. It's one reason we built our company – to remove the risk of losing capital to rather avoidable issues and ensuring it was always secure.
It's also one of the reasons we want to ensure the market has a shared legal language too – because sophisticated markets should, and they operate better when they do.