- Proposed standard to improve the efficiency of trading and clearing of exchange traded derivatives
- The consultation marks a milestone in the development of the DMIST as a standards-setting body
FIA and DMIST, the Derivatives Market Institute for Standards, have jointly announced the publication of a proposed standards aimed at improving the processing of certain types of transactions in exchange-traded derivatives markets. This is the first standard proposed by DMIST, an independent organization created by the FIA earlier this year to promote greater efficiency in the trading and clearing workflow for derivatives.
The action launches a consultation process with industry stakeholders that will last until January 17, with the aim of finalizing the standard next year. Any member of the public can post a comment and all comments will be made publicly available.
The proposed rule applies to the treatment of waivers and assignments. The standard aims to establish the time to complete actions on these transactions, in order 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 the long-term goal of bringing 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 weaknesses in the negotiation and clearing process. We have had many productive discussions with a number of exchanges, clearing brokers, clients and other stakeholders and we believe the proposed 30-30-30 approach is a great starting point on our journey towards greater efficiency in the workflow of negotiation and clearing. “
Walt Lukken, President and CEO, 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 weaknesses without industry-wide standards. This led to the decision to found the DMIST and I want to thank all the companies involved in this project for their commitment in starting this new body and drafting its first consultation “.
Discussions within the industry have identified some challenges in the assignment and waiver process, which depends on a series of sequential actions that need to be coordinated between different market participants and can lead to delays.
The DMIST has identified three activities that affect the timeliness of waivers:
- Clients who do not provide allocation instructions to their execution brokers in a timely manner
- Executive brokers do not report trades assigned to clearing brokers in a timely manner
- Clearing brokers who do not accept allocations in a timely manner with corresponding timely posting in clients’ final accounts
DMIST proposes that each client, running broker and clearing broker send and process their own waiver and allocation messages within 30 minutes of the relevant event triggering their action.
DMIST believes this 30/30/30 standard will reduce end-of-day bottlenecks, reduce manual processing and improve the overall customer experience.
Comments from sponsoring board members
Gary Saunders, Global Head of Prime Derivatives Services, Barclays: “March 2020 was a turning point. It made us look long and hard at how futures clearing works and, with renewed energy, try to remove friction and increase direct processing. Getting multiple 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 shaped by our industry ”.
Samina Anwar, Director of Derivatives Operations, Cargill: “The 30/30/30 proposal presents an opportunity for Cargill to significantly reduce its hedging risk for end-of-day or ‘T + 1’ validation of voice operations. We hope that the proposal will be accepted in public consultation and adopted in the near future “.
Jens Janka, Board Member of Eurex Clearing: “Eurex Clearing supports the industry initiative to improve and strengthen post-trade processes for exchange-traded derivatives. Proposing standardized times for the different phases involved in the assignment process is, in our opinion, a first reasonable measure. We believe these timelines are an important first step in identifying areas for process improvement and, as a result, will drive the further development of standardized IT solutions that will mitigate operational risks and increase efficiency across the industry. “
Chris Edmonds, Chief Development Officer, Intercontinental Exchange: “Orderly, efficient and transparent management of markets has always been a fundamental part of our business and we have been delighted to work with our industry peers to drive these critical changes. The proposed protocol is an important step in further standardizing the post-trade process and will enable new operational efficiencies to the benefit of all market participants. “
DMIST structure and membership
DMIST was formed by the FIA in April 2022 as an independent body to facilitate and manage the efforts of market participants to develop standards for exchange-traded and cleared derivatives markets. The ultimate goal is to encourage the widespread adoption of standards that help make markets more efficient, resilient and competitive. Membership of the DMIST is separate from membership of the FIA and opened to the industry in April.
DMIST offers two levels of participation: (1) the members of the Board of Sponsors who consider and approve the standards; and (2) Ambassador level members, including technology vendors, who are subject matter experts and who help identify, develop and calibrate standards for endorsement by the Board of Sponsors.
The Sponsor Board is currently made up of representatives of the following companies:
- ABN AMRO Chicago Cancellation
- 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.
- JP Morgan Securities PLC
- Morgan Stanley
- General Company
- Wells Fargo Securities, LLC
The current Ambassador companies are:
- COMMERCIAL DATA EUROMONEY
- FIA Technology Services, LLC
- Fidelity Information Services, LLC
- Futures exchange FMX, LP
- Limited Quorso
- Financial need
For more information on participating in DMIST, please visit our website at https://www.fia.org/derivatives-market-institute-standards-dmist.
Download the standard PDF consultation here.