The challenges of Smart Contract implementation Self-execution of contracts Discretion is the enemy of smart contracts. Clearing relies on discretion - a lot: • Clearing broker has discretion in how much margin to call the client for, and when • Default of the client: clearing broker has discretion in how, whether and when to close out the client, and what to do with the posted collateral • Default of the clearing broker: client has discretion as to whether to port their positions to a back up broker or close them out • Default of the clearing house: the clearing house management and regulators have significant discretion, that may impact the client/clearing broker relationship • The clearing broker can exercise discretion to change the terms of the trade in light of the actions of markets or regulators Further, unlike OTC derivatives, the relationship is not bilateral – what happens to the contract and trades under it are impacted by exchange rules and clearing house rules. UNRESTRICTED 67