Swap Factory: Bilateral Derivatives Without Central Custody
Category:
Factory
Date:
Creator
Vannes Junius
Interest rate and currency swaps have traditionally required either a trusted central counterparty or a web of ISDA-governed bilateral agreements backed by manual confirmation processes. Both approaches work, but both come with overhead.
Negotiation without exposure
Swap Factory contracts on Canton let two counterparties negotiate terms directly and instantiate the swap as a shared, privacy-preserving contract. Neither party needs to trust a third party to hold collateral or guarantee performance.
Why privacy matters here specifically
Derivatives desks are unusually sensitive about information leakage — a competitor knowing your notional exposure or your rate view is a real edge against you. Canton's architecture means the network can provide shared settlement rails without shared visibility.
Settlement without a clearer
Because payment legs are encoded directly into the contract, netting and settlement happen automatically on schedule, without a clearer sequencing the payments. This removes a category of counterparty risk that traditionally required collateral posting or a CCP relationship to manage.
