The fragmentation of EU’s markets has taken over industry discussions recently, with harmonisation and standardisation being posed as solutions to the issue. In a timely report, Markets Media takes an in-depth look at the origin of the Derivatives Market Institute for Standards (DMIST), the contributions it has made to improving workflows in the industry, and where it sees harmonisation going in the future.
The establishment of DMIST has its roots in the COVID pandemic when, in 2020, a “massive backlog of exchange traded derivatives (ETD) built up between February and mid-March”, writes the report. CCPs had to extend their clearing windows, but there were nevertheless “long delays in the allocation and give up process”. It took days to correct some trades there were in the wrong place.
The Futures Industry Association (FIA) realised that systemic risk existed in the ETD workflow that could be exacerbated by geopolitical and macro events. DMIST was thus set up to address the areas of risk and optimise workflows in the industry.
Getting the timing right
The timeliness standard was the first one published by DMIST. It recommends a 30/30/30 model – 30 minutes for completing steps in the allocation process and 30 minutes from confirming orders to booking trades.
Markets Media points out that “the financial industry has historically struggled with timely trade allocations”, especially with give-up trades. This was due to give ups and allocations all being “bunched together towards the end of the day”.
Don Byron, head of global industry operations and execution at FIA and executive director of DMIST says, “30/30/30 is the initial goal, and hopefully that becomes faster.”
More in the pipeline
Following the 30/30/30 timeliness standard was the average pricing standard. It calls for CCPs to “adopt certain minimum standard average pricing functionality”, addressing the lack of standardisation that has been cited as a reason for transactions not being processed on trade date.
DMIST has revealed that it has more standards in the pipeline – a universal order ID is one, and a standard for position transfers is the other. On the necessity of the former, Byron says, “The current identifiers and tags used in the industry do not fit the purpose of being able to track an order across the full workflow from front to back.” On the latter, it is “being increasingly used by the industry” and “existing rails cannot handle the volumes”.
Progress check
To track progress, DMIST aims to develop processes to measure adoption and implementation.
“Constantly looking at the standards to see if they need to be updated” is a “helpful way to encourage implementation and adoption”, says Byron. This involves, for example, speaking to CCPs that offer average pricing “to understand where their current functionality fits into the standard”. Additionally, DMIST plans to create an implementation guide for non-DMIST members.
