Smart contracts and distributed ledger technology (DLT) are increasingly being seen as a way for the derivatives industry to realise operational efficiencies and cut costs. With these new technologies potentially transforming how derivatives are executed and managed through the entire lifecycle, it seems the derivatives market is on the cusp of significant modernisation.
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. Could a smart contract ultimately replace an existing legal contract in its entirety, or will it only automate the execution of certain actions specified within the contract?
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