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Industry standardisation continues with FIA’s call to join Derivatives Market Standards Institute

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A roundtable has helped define a roadmap to futures standardisation, which will help solve painful inefficiencies in the industry.

This innovative roundtable, which I had the privilege of chairing, took place at the International Derivatives Expo (IDX) in London on 7 June 2022.

It featured 10 experts representing a cross-section of the futures industry. These experts have been leading voices in the Futures Industry Association (FIA) working groups leading to creation of the Derivatives Markets Institute for Standards (DMIST).

The IDX roundtable encouraged more participants to join DMIST to continue defining solid best practice standards. These standards will provide a foundation for the futures industry to improve risk management; increase operational resilience; and grow capacity.

Efficiency increasing but there is more to do

As a panel, we compared how the industry dealt with high trade volumes when the pandemic struck and two years later, when Russian invaded Ukraine.

The industry processed 52% higher volumes of give-ups with 42% more efficiency (measured by late give-ups) in March 2022 compared to March 2020. This led to many more give-up trades getting to the right clearing accounts on trade date.

Significantly, trades outstanding after top day were also resolved much more quickly, with almost all in the right place by T+1.

Observations from the conference floor corroborated this data. The efficiency increase over the last two years partly came from the industry being more transparent and connected to resolve issues more quickly. But allocation delays have been revealed as a further problem.

A range of pain points, including inconsistent methods and messaging, continue to drag on efficiency. For a full evolution, we need to set best practice standards – including around allocation and give-up response times – before implementing procedural and technological solutions.

How to adopt standards

Audience members entered a healthy debate about the best way to express and adopt standards.

Participants proposed DMIST should ultimately target real-time give up and allocation as many firms are already processing trades at this cadence. However, as an industry we can only progress as fast as the weakest link. So the first standards should focus on achievable but timely first-phase time limits.

If we can achieve consensus on these issues, that will help set the ultimate destination of real-time processing; encourage development and adoption by setting initial time targets; and drive the momentum of the standards.

Crucially, we also need to agree key performance indicators, so we can measure progress towards targets, and identify areas for future focus. This will also require consensus, trust and transparency.

DMIST is not a regulatory body with a regulatory incentive to drive adoption. It is the industry working together to heal the dull ache of inefficiency.

Delta Capita and FIA partnership

Delta Capita is proud to be working with the industry to solve these challenges. We have partnered with the FIA to analyse root causes of inefficiency and suggest solutions.

Delta Capita will continue our engagement with FIA to help structure and lead the DMIST working group programme over the coming year. We look forward to providing further progress reports at future FIA events.

By Mark Croxon, Global Head of Market Infrastructure at Delta Capita