Today, FIA together with affiliate FIA Tech, announced new technical guidelines for firms to properly identify the correct brokerage when executing and clearing exchange traded derivatives.
With the proliferation of execution services, platforms and providers there is increased need for clarity in how to communicate a trade’s execution method through industry standard codes. Brokerage discrepancies are one of the largest causes of operational friction in the reconciliation of exchange traded derivatives, and lack of standardization has created significant costs for clearing firms and their clients. By working with FIA’s membership as well as FIA Tech’s global customer base, the industry has devised standard codes for commonly used execution methods (view summary and full guidelines).
The guidelines reflect common industry practice regarding different types of execution, providing both a simple model (“high touch” and “low touch”) and a more complex model including sponsored access, third-party trading screens, and third-party premium algorithmic trading providers. Firms can implement the guidelines within vendor solutions to identify the correct brokerage rate at point of origin to ensure timely and accurate settlement.
As part of the initiative, all of FIA Tech’s services will utilize the new guidelines and FIA Tech anticipates a 10 percent to 20 percent improvement in straight-through processing across its customer base, creating significant efficiencies for clearing firms and their clients.
At launch, the published guidelines are supported by CME Group, Intercontinental Exchange and Eurex Group. Other exchanges are expected to join.
“We’re pleased to see the industry come together to address this long-standing industry problem,” said Nick Solinger, President and CEO, FIA Tech. “Our executing and clearing customers are very supportive of this initiative as it will reduce operational cost across the industry, to the benefit of all market participants and clients.”
“Working together with a broad slate of buy side and sell side firms, CCPs, trading system vendors and fund administrators, the revised guidelines being issued by the FIA serve to recommit several industry participants to providing crucial information about the execution method of futures trading in order to provide certainty of brokerage fees throughout the entire workflow. When adopted by FCMs and CCPs, consumed by execution platforms, order management systems, and fund administrators, all participants in the work flow will benefit by the clear reference to brokerage rates in their brokerage agreements,” said Erik Barry, Head of Client Platform for Prime Derivative Services at Credit Suisse.
“As more and more customers use give-up agreements for execution across different brokers, the guidelines represent an important step forward for accurate tagging of brokerage rates on trade date. There is a real desire within the industry to address this issue, and the guidelines will help market participants achieve the goal of having the correct brokerage tagged on an order through execution, give-up and clearing,” said Greg Wood, Senior Vice President, Global Industry Operations and Technology, FIA.