Building a solution to match order IDs between buy-side and executing brokers has unquestionably been a mark of progress, OSTTRA’s Head of FX and Securities Joanna Davies notes. In this article, get a teaser of forthcoming events in the ETD trade workflow story.

A never-ending story where everyone waits in anticipation for the next instalment. Well, it is Oscar season after all. But for those of us immersed in the world of market infrastructure, there is a more esoteric narrative developing that would rival any academy award winning script. While the story of enabling greater visibility and efficiency in exchange-traded derivatives (ETD) markets is far from complete, there are more than a few signs of progress.

In part one this time last year, we talked extensively about how the industry, as a whole, needed to work together. Only through collaboration can firms have real-time transparency into the status of the executions, and control over the allocation of risk to the correct accounts at the clearing brokers. This transparency is key in driving a significant reduction in operational risk and cost for all participants, as well as significant capital cost reduction for executing brokers (EBs).

Exploring these issues through industry dialogue and fostering a spirit of collaboration, we are delighted to report that we have made real progress in developing solutions to help mitigate these challenges.  Take the issue of order IDs as a prime case in point.  By uplifting our services to support the matching of order IDs from both buy-side and executing brokers, clearing firms will no longer be encumbered with an imperfect process of hunting for fills to pair off with allocations submitted using average price, enabling a smoother and more expedient give up process and submission onwards for clearing. If standardisation is the key to unlocking the door to success, as per the broader blueprint published by the FIA back in October, then our uplifting of the trade order ID component takes the industry a further step forward.

However, while finding a solution to the ID component is unquestionably a mark of progress, there are additional chapters to come in the ETD trade workflow story.  Reconciling the correct execution commissions remains a significant headache for the FCM community.  In response, we are enriching allocation records with the appropriate data, removing the need for brokers to manually look up commission schedules and append trades with the correct amounts.

We’re also looking to drive further efficiencies by connecting bi-directionally to Clearing Houses in order to deliver two clear benefits.  Firstly, the further enrichment of trade records by sourcing the Exchange Order ID which will provide an irrefutable link between EB Fills, Client allocations and the trade held at the clearing house. Secondly, by directly submitting client allocations to Clearing Houses, we can remove potential delays and provide investment firms with a direct a view into the clearing status of their trades across their entire broker network.  We began this journey by connecting to CME clearing and are working to integrate a further four major CCPs in the coming year.

Our ongoing talks with many industry participants suggest that continuing to adopt a pragmatic and expedient way to solve the functional issues is the right approach and starts the ETD community on the path to implementing standards, as guided by the FIA blueprint. It all comes down to bringing operational efficiency, transparency, and timely processing, while giving buy-side firms the necessary flexibility to meet their mandates. Ultimately, the transformation of the workflow should be the primary goal for all parties but, for ETD, most participants are still talking about evolution as opposed to revolution – and our progress at OSTTRA clearly aligns with that sentiment.

So, while the award winners at this year’s Oscars may well feature exciting plot twists and taut psychological drama, we’re backing a more predictable script for our industry in the coming years.  A storyline built on careful analysis, step by step change and, above all, continued collaboration among all ETD market participants.

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About the author

Joanna Davies, Managing Director, Head of FX and Securities, OSTTRA

Joanna Davies served as global head of Traiana since June 2019, prior to heading up foreign exchange and securities at OSTTRA. She is responsible for strategic direction and day-to-day management. Prior to this, Davies served as head of product for NEX Optimisation, where she focused on optimising revenue and maximising technology innovation for NEX Group’s six pre- and post-trade businesses. She preceded this as managing director and head of product for Traiana. Davies has 30 years’ experience in investment banking, working predominantly in the exchange-traded derivatives space, with prior roles including head of client relationship management, head of operations and voice broker.

Part 1 – Solving the Domino Effect of Delayed Trade Allocations