Under the Smart Derivative Contract, disputes may arise between the parties at the transaction level (e.g. B disagreement on the calculation of a given transaction in the Settlement), typical events of defaults or termination events, as provided for in the ISDA Framework Contract, or other unexpected events such as fraud. In addition, participants in derivatives must also take into account additional sources of disputes specific to the smart derivative contract, such as. B incorrect data entry or late payment resulting from a system defect. Banking and Financial Services Litigation Webcast Series 2019 – Part 1 In accordance with the legal guidelines on smart product contracts published by ISDA in 2019: introduction, the term « smart contract » can be interpreted in different ways and one of its best definitions is: « A smart contract is an automatable and enforceable agreement. Computer-automatable, although some parts may require human input and control. Either by enforcing legal rights and obligations, or by executing computer code free from manipulation. The ISDA framework contract defines 8 typical default events, such as. B non-payment or delivery, breach or refusal of the agreement, misrepresentation, failure to cross and bankruptcy. In the event of default, the non-defaulting party may decide to continue or terminate all smart framework contract transactions under the ISDA framework contract. Section 4 of the ISDA Framework Agreement contains provisions on agreements between the parties, such as the provision of certain information, the obtaining of necessary administrative or other authorisations and the payment of stamp duty. In particular, the ISDA framework contract is not automatically terminated in the event of default or termination, with the parties remaining entitled to decide whether to terminate the transactions in question.
It is therefore essential for technology developers to develop a system that allows parties to suspend automated performance when the event of failure or termination occurs and to exercise discretion in this regard. With respect to Step 4 above, the non-defaulting party or the non-affected party has the option to replace with a single early termination amount all outstanding payment and delivery obligations of the other party resulting from the completed operations. This process is called close-out-off. For smart derivative contracts, parties may consider using technological solutions to monitor the occurrence of a default or termination event, for example. B by referring to oracles or other external data sources, in order to determine whether they have the right to terminate a transaction that may later trigger the closing process. . . .