FIA provides three recommendations to improve trading processes

The recommendations, developed with JDX Consulting, are based on insights gained from 25 organisations and over 60 people representing the listed derivatives marketplace.

The world’s leading exchange-traded derivatives organisation is looking to improve trading and clearing processes following severe backlogging of unallocated and misallocated trades in March 2020, largely due to the pandemic.

The FIA has provided three recommendations to improve the industry’s efficiency and resilience and has called on futures and options participants to work together on what it has called a “major initiative”.

The trade body said efforts to improve the workflow in the trading and clearing process have been limited by bespoke processes and the lack of interoperability of systems. 

“When Covid abruptly shut down the world economy in March 2020, the global futures and options markets experienced record trading activity and extreme volatility,” said Walt Lukken, president and chief executive of FIA.

“This period of stress exposed several long-standing bottlenecks in the trading and clearing infrastructure that cause costly delays in the processing of trades.”

FIA’s first recommendation is to create an independent, open-access markets standards body (MSB) that will encourage increased cross-industry engagement, leading to widespread adoption of standards and best practice.

In addition, this recommendation aims to improve the commitment, governance and accountability of the industry.

The second recommendation is to develop a collaborative and meaningful agenda, with three main priorities at this moment.

First, in respect to the trade allocation process, FIA views the opportunity to streamline and create standards and consistency across the industry as beneficial. The objective is to reduce operational workload and operational risk, as well as seeing better provision of trade status data.

By doing this, allocations can be sent in a timely manner which will benefit the entire ecosystem from a cost and risk perspective.

Secondly, with regards to the trade give-up process, FIA sees an opportunity to reduce complexity since there are multiple give-up possibilities at CCPs and several settlement timings and windows.

In a benefit statement, FIA said this recommendation would enable a better understanding of settlement time flexibilities and increase transparency.

Lastly, in respect to average pricing methodologies, FIA suggests an objective of an agreed general framework on the design and implementation of APS models resulting in fewer variations in functionality across market participants.

FIA’s third recommendation calls for the establishment of an action roadmap. In order for these plans to work, the industry needs to feel included in this call to action in developing a Markets Standards Body and agenda.

In addition, FIA stated that it must create a representative governance structure, make the case to the industry and secure early adopters and champions to optimise the chances of this initiative succeeding.

Through these recommendations, FIA plans to improve processes to create ‘effective fire prevention rather than effective firefighting’ for all sectors and participants in the listed derivatives markets.

The recommendations, created in collaboration with JDX Consulting, are based on insights gained from 25 organisations and over 60 people representing a wide range of the market segments and roles that make up the listed derivatives marketplace.

“FIA embarked on this open standards initiative to understand how we can make the ecosystem for trading and clearing more efficient through the adoption of standards and best practices,” added Lukken.

“Today’s Blueprint gives us a pathway for success, but more work needs to be done. FIA looks forward to beginning that dialogue and education with our industry.”