Tokenovate has hired former ISDA assistant general counsel, Ciarán McGonagle, as chief legal and product officer. McGonagle will lead the creation and execution of Tokenovate’s legal-first product strategy, as well as serving as in-house counsel. The firm provides distributed financial market infrastructure, including tokenisation and blockchain-powered smart contracts, enabling post-trade lifecycle event management of workflows for OTC and exchange traded derivatives.
McGonagle spoke to Global Trading about why derivatives are well-suited to blockchain technology, his involvement with the development of the Common Domain Model while at the International Swaps and Derivatives Association (ISDA), and what he, and Tokenovate, are looking to achieve in the space.
At ISDA, McGonagle contributed to the development of the Common Domain Model and helped to advance ISDA’s work on tokenisation. Prior to ISDA, McGonagle was a vice president at Deutsche Bank, an associate at Morgan Stanley, and trained at Allen & Overy in London.
McGonagle has worked as a lawyer in the derivatives market for 15 years — his career began just as the Great Financial Crisis (GFC) was kicking off. “It was a baptism of fire,” McGonagle told GT. He has spent that time getting to grips with the legal framework underpinning the derivatives market and the wave of regulatory change enacted in the wake of the GFC.
There’s nothing new that isn’t old
McGonagle moved to ISDA just as these regulatory change mandates were coming to an end, “and the industry was beginning to take stock”. In the background, nascent technologies such as blockchain and its applications including smart contracts, were beginning to emerge.
“How could that new technology be applied to this now much more heavily regulated and, as a result, much more sophisticated financial market infrastructure?”
Considering the legal implications of these new technologies, and their application to derivatives, “is a really interesting and exciting question”, McGonagle said. “It forces you to go back to basics. For example, when we first started talking about smart contracts, we started thinking ‘what is a contract?’ You can take distinct principles and apply them to this new world as well.”
“There are a lot of interesting things and features of these new technologies that could be, and are being, applied to make market infrastructure more efficient, more effective, which ultimately benefits the consumer through lowering fees, for example,” McGonagle told GT.
Speaking the same language
At ISDA, McGonagle helped to develop the Common Domain Model (CDM), a standardised, machine-readable and machine-executable data and process model for how financial products are traded and managed across the transaction lifecycle.
“At its core, ISDA is a standard setting body. They have worked for more than four decades to develop standards upon which people can trade efficiently and effectively. Now, everybody trades on a common form, and that increases legal certainty in the market,” McGonagle told GT.
“Going back to the post-financial crisis environment, a lot of the new regulatory mandates made the trading of derivatives much more complex, because they required, for example, clearing, the provision of collateral and lots of other requirements as well.”
The upshot of that, McGonagle said, was more contracts, more pieces of paper, more data, and data flowing across multiple entities. This is the problem the CDM is designed to solve.
“As we expand into legal agreements, it’s all going to be based on that common industry standard that’s been validated by the industry. That’s absolutely the correct approach,” McGonagle said.
Golden record
Smart contracts, an area in which McGonagle specialises, are essentially designed to automate obligations, and to reflect the operational contractual rights which might impact upon those obligations. “If you parse through all the dense legal language, what you can very clearly see across most contracts is, ‘if something happens, then that should happen’.”
McGonagle said that derivatives data needs to be reported, monitored, and actioned upon on an ongoing basis. “Derivatives are complex, and financial market infrastructure within the derivatives markets is very complex. I would argue derivatives are among the best use cases for blockchain technology.”
“Our ambition is, not only the financial infrastructure side of things, but this idea of creating a golden record of data, and to build all of these operational processes on top of it, whether that’s collateral management, settlement, through smart contracts,” McGonagle told GT.
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