Jake Daly-Leonard
ISITC co-chair, Derivatives Working Group, and Manager, Meradia
Automation continues to transform trade processing. Exchange-traded derivatives, however, still face data gaps that can bring straight-through processing to a halt. The good news: closing these gaps may require fewer changes than you might think.
How a trade is executed, which broker executes it, and whether it is part of a multi-leg strategy can introduce nuances that alter core identifiers and execution pricing. Without standardized data points to capture and communicate these details, firms are often forced into manual investigation, reducing straight-through processing. ISITC and the Derivatives Market Institute for Standards (DMIST) are working together to address these gaps and develop standards designed to improve post-trade accuracy, risk controls and operational efficiency across buy-side and sell-side participants.
How a trade is executed, structured, and cleared has implications for every stage of trade processing. This can lead to commission breaks, price differences when trades receive an average price, and misalignment of traded lots for reconciliation. While many of these issues are easily resolved manually, they reduce straight-through processing and create unnecessary noise for post-trade operational teams. With a fairly limited number of new tags and flags, the industry can increase trade processing automation for ETD.
The Futures Industry Association (FIA) tag 1031 is foundational to this proposal. Key exchanges like CME, ICE, and Eurex are already leveraging this framework with other exchanges expected to join. Increased buy-side and sell-side adoption of tag 1031 will enable more participants to pass execution details for give-up trades where the executing broker is not the clearing broker. This would enable users to have better execution identification and better transparency for block and Exchange for Related Position (EFRP) trades regardless of the execution or clearing venue. To address differences in trade shape, ISITC and DMIST are proposing standard identifiers including an ID used when trades receive an average price as well as a parent order ID and CCP-generated IDs at the fill level. The addition of these identifiers will help market participants reconcile and settle trades when trade shapes differ, increasing automation.
To realize this standard, exchanges and clearing houses would need to update matching platforms and messaging standards to capture and pass these new attributes. CCPs would need to develop API access for this data and an industry-wide broker registry would need to be developed and maintained. This work will depend on individual exchange prioritization but can be influenced by overall industry demand.
Better trade tagging is foundational infrastructure with outsized downstream benefits. Through their collaboration, ISITC and DMIST are working to build greater alignment across buy-side and sell-side participants and advance the standardization needed to realize those benefits. The next step is broader industry engagement. We encourage market participants to join the conversation to help shape the standards that can move ETD processing toward greater automation.