Institutional digital-asset firms may be able to trade without placing assets directly on an exchange, but establishing the legal relationships behind that model can remain a lengthy process. BridgePort is seeking to reduce that friction with a common contractual framework for off-exchange settlement arrangements involving trading firms, custodians and execution venues.
The company is piloting the Digital Asset Master Agreement (DAMA), a reusable legal template intended to replace some of the bespoke negotiations required whenever counterparties establish a new off-exchange settlement relationship. BridgePort is forming a working group of trading firms, custodians and exchanges to test the framework across live arrangements.
Off-exchange settlement allows a trading firm to retain assets with a custodian while trading across multiple venues. The structure can reduce assets held directly at exchanges and make collateral available across a wider range of trading relationships. Its practical benefits, however, depend on agreements defining how collateral, credit, settlement and default will be handled between the three parties.
Those agreements can take months to negotiate because each relationship may involve different custody structures, regulatory obligations and operational processes. DAMA is designed to provide a common set of definitions and contractual provisions while preserving the ability to configure the terms for individual counterparties.
The framework can, for example, specify whether collateral is held in trust or pledged under a security interest. Participants can also determine whether DAMA operates independently or refers to an existing International Swaps and Derivatives Association agreement.
“The infrastructure for off-exchange settlement is largely in place,” said Nirup Ramalingam, CEO of BridgePort. “The next phase of this market depends on standardizing the legal foundation beneath it, as has happened in every institutional market before. A shared standard lowers the barrier to entry and gives the market room to scale. DAMA will give the industry that foundation.”
The agreement covers four areas that can create legal and operational uncertainty in off-exchange settlement relationships.
Its custody provisions define how collateral is safeguarded and segregated, including whether assets are held in trust or pledged. Settlement terms address how credit is extended against that collateral, how balances are reconciled and how the settlement cycle operates.
The operational provisions establish how parties respond to erroneous transfers, failed settlements and outages affecting the balance information exchanged between custodians and venues. Default and termination clauses cover events such as venue insolvency or failure, together with close-out procedures, termination rights and the return of collateral.
Standardising these provisions could reduce the amount of legal work required for each new connection. The wider effect will depend on whether custodians, venues and trading firms are prepared to adopt the framework rather than continue using their own agreements.
“The long-term value of standardization extends well beyond faster onboarding,” said Steve Bartfield, chief product officer at BridgePort. He added that commonly adopted frameworks could allow market participants, law firms and industry bodies to develop legal analysis, operational expertise and market practices that can be reused across the sector.
DAMA takes inspiration from the role that master agreements play in established financial markets, but it is intended specifically for the tri-party relationships underpinning digital-asset off-exchange settlement. The pilot will test whether a shared foundation can accommodate different regulatory, commercial and custody models without recreating the agreement for every relationship.
BridgePort provides middleware for coordinating credit allocation and post-trade activity between trading firms, exchanges and custodians. DAMA extends that coordination proposition into the legal layer, addressing an onboarding constraint that technology integrations alone cannot resolve.
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