Proposed standard aimed at improving efficiency in the trading and clearing of exchange-traded derivatives
Consultation marks key milestone in the development of DMIST as standard-setting body
Washington, DC—FIA and DMIST, the Derivatives Market Institute for Standards, have jointly announced the publication of a proposed standard aimed at improving the processing of certain types of transactions in the exchange-traded derivatives markets. This is the first standard proposed by DMIST, an independent organization created by FIA earlier this year to promote greater efficiency in the trading and clearing workflow for derivatives.
Today's action kicks off a consultation process with industry stakeholders that will last until 17 January, with the goal of finalizing the standard next year. Any member of the public may submit a comment and all comments will be made publicly available.
The proposed standard applies to the processing of give-ups and allocations. The standard aims to establish timeframes for completing actions on these transactions, so as to reduce end-of-day bottlenecks and the number of transactions that need manual processing. The development of this standard is the first step towards achieving a long-term objective of moving the industry closer to real-time processing.
Don Byron, Global Head of Industry Operations and Execution, FIA: "Today's release of the proposed standard is an important milestone in our efforts to address some long-standing pain points in the trading and clearing process. We have had many productive discussions with a number of exchanges, clearing brokers, clients and other stakeholders, and we think the proposed 30-30-30 approach is a great place to start in our journey to greater efficiency in the trading and clearing workflow."
Walt Lukken, President and Chief Executive Officer, FIA: "When we launched this initiative in 2020, we soon realized that the complexity of the processing workflow would make it very difficult to address these pain points without industry-wide standards. That led to the decision to form DMIST, and I want to thank all of the firms involved in this project for their commitment to starting up this new body and drafting its first consultation."
Discussions within the industry have identified certain challenges in the allocation and give-up process, which depends on a series of sequential actions that must be coordinated among different market participants and can lead to delays.
DMIST has identified three activities impacting the timeliness of give-ups:
- Clients not providing allocation instructions to their executing brokers in a timely manner
- Executing brokers not alleging the allocated trades to clearing brokers in a timely manner
- Clearing brokers not accepting allocations in a timely manner with corresponding timely booking into client end accounts
DMIST is proposing that each client, executing broker, and clearing broker should submit and process their give-up and allocation messages within 30 minutes of the relevant event that triggers their action.
DMIST believes that this 30/30/30 standard will reduce end-of-day bottlenecks, reduce manual processing, and improve the overall customer experience.
Comments from Sponsor Board members
Gary Saunders, Global Head of Prime Derivatives Services, Barclays: "March 2020 was an inflection point. It made us look long and hard at how futures clearing works, and with renewed energy look to remove friction and increase straight-through processing. Getting more trades in the right account at the right time for our clients has so many benefits for all parties involved. It is exciting to see that vision being shaped by our industry."
Samina Anwar, Derivatives Operations Director, Cargill: "The 30/30/30 proposal presents an opportunity for Cargill to reduce its hedging risk considerably for end-of-day or 'T+1' validation of voice trades. We're hopeful the proposal will be accepted under public consultation and adopted in the near future."
Jens Janka, Member of the Executive Board, Eurex Clearing: "Eurex Clearing supports the industry's initiative to improve and strengthen the post-trade processes for exchange traded derivatives. Proposing standardized timeframes for the different steps involved in the allocation process is, in our view, a reasonable first measure. We believe that such timeframes are an important first step to identify areas for process improvement and will consequently foster further development of standardized IT-based solutions that will mitigate operational risks and increase efficiency across the industry."
Chris Edmonds, Chief Development Officer, Intercontinental Exchange: "Operating orderly, efficient and transparent markets has always been a core part of our business and we were pleased to work with our peers in the industry to bring these critical changes forward. The protocol proposed is an important step in further standardizing the post-trade process and will allow new operational efficiencies benefiting all market participants."
DMIST structure and membership
DMIST was formed by FIA in April 2022 as an independent body to facilitate and manage market participant efforts to develop standards for the exchange-traded and cleared derivatives markets. The ultimate goal is to encourage widespread adoption of standards that will help make markets more efficient, resilient, and competitive. DMIST membership is separate from FIA membership and was opened to the industry in April.
DMIST offers two levels of participation: (1) the Sponsor Board members who consider and approve standards; and (2) the Ambassador level members, including technology vendors, who are subject matter experts and who help identify, develop, and calibrate standards for the Sponsor Board's approval.
The Sponsor Board currently consists of representatives from the following firms:
- ABN AMRO Clearing Chicago
- ADM Investor Services, Inc.
- Barclays International
- BlackRock Financial Management
- BNP Paribas Securities Corp
- Bank of America Securities, Inc.
- Cargill Incorporated
- Chicago Mercantile Exchange Inc
- Citadel Advisors LLC
- Eurex Clearing AG
- Goldman Sachs & Co. LLC
- Intercontinental Exchange Inc.
- J.P. Morgan Securities PLC
- Morgan Stanley
- Société Générale
- Wells Fargo Securities, LLC
The current Ambassador firms are:
- EUROMONEY TRADEDATA
- FIA Technology Services, LLC
- Fidelity Information Services, LLC
- FMX Futures Exchange, L.P.
- Quorsus Limited
- Sernova Financial
For more information on participating in DMIST, please visit our website at https://www.fia.org/derivatives-market-institute-standards-dmist.
FIA is the leading global trade organization for the futures, options and centrally cleared derivatives markets, with offices in Brussels, London, Singapore and Washington, D.C.
FIA's mission is to:
- Support open, transparent and competitive markets,
- Protect and enhance the integrity of the financial system, and
- Promote high standards of professional conduct.
As the leading global trade association for the futures, options and centrally cleared derivatives markets, FIA represents all sectors of the industry, including clearing firms, exchanges, clearinghouses, trading firms and commodities specialists from about 50 countries, as well as technology vendors, law firms, and other industry service providers.
- Industry Operations