How Standardization Supports the Growth and Resilience of Clearing Markets

Boca 2025—the 50^th year of the International Futures Industry Conference—is just around the corner, and the global cleared derivatives industry will converge to discuss the future of markets, efficiency and structure.

Standardization will be a major theme throughout these conversations as the industry seeks to reduce complexity and foster greater simplicity across both ETD and OTC markets. By solving for friction and variance, market operators and participants alike stand to benefit tremendously through streamlined operations, scalability and cost savings.

As a stakeholder in the integrity and strength of the entire financial fabric, Nasdaq Financial Technology is proud to be an active participant in these conversations and support industry-wide progress toward unification and application of international standards.

Why the emphasis on standards?

At a fundamental level, the more businesses do in common, the easier it is for everyone to participate and succeed. But as markets grow, regulations expand and operations evolve, differences emerge or are reinforced. This ultimately has the impact on limiting market activity and restricting growth. Best practices and standards are necessary to plug these gaps and smooth operations.

For example, if a central counterparty clearinghouse (CCP) in one country or region has different documentation requirements and messaging protocols from another CCP, firms must typically make up for the variance by adding headcount, diverging from standardized frameworks and adding point solutions to a tech stack that quickly becomes fragmented and cost-intensive to maintain.

In fact, Nasdaq recently found the lack of standardization to be a major growth blocker in Latin American markets. Our survey with the ValueExchange found that global investors were stymied in growing their exposure to key LatAm markets because of operational hinderances that could be solved with standardization and regional harmonization. Respondents (including banks, brokers, institutional investors and asset managers) saw upside with the application of standards, expecting:

• 18% cost savings from standardized, automated messaging for collateral movements
• 11% cost savings from standardized operational processing of all corporate actions and events
• 9% cost savings from standardized messaging for securities lending trades and recalls

The 30-30-30 rule

The Derivatives Market Institute for Standards (DMIST) has been a key facilitator and advocate for the adoption of standards, born out of industry conversations following high volumes and volatility experienced during the COVID-19 pandemic. DMIST’s goal is to encourage widespread adoption of standards in the ETD industry to help make markets more efficient, resilient and competitive for all.

In June 2023, DMIST published its first standard on “Improving the Timeliness of Trade Give-Ups and Allocations” that established 30-minute timeframes for clients, executing brokers and clearing brokers to complete steps in the allocation process. This was done with the goal of encouraging straight-through processing (STP) and greater transparency within the trade workflow, which would mitigate end-of-day bottlenecks and reliance on manual processing. 

DMIST: FINAL STANDARD for Improving Timeliness of Trade Give-Ups and Allocations

At Nasdaq Financial Technology, we are deeply committed to integrating DMIST standards within our Market Technology solutions for CCPs and clearing. This commitment is reflected in our rigorous evaluation of approved standards and those still in the consultation phase. By incorporating these evaluations into our development initiatives, we strategically plan for future advancements through a well-defined roadmap.

Nasdaq’s integration of its strategic clearing platform, Nasdaq Real-Time Clearing (NRTC), into FIA Tech’s Trade Data Network (TDN) will help further reduce the complexity of post trade data processing across the ETD market.

Through TDN, FIA Tech provides market participants and post trade service providers with the tools to improve middle and back-office processes including trade-date clearing, give-ups, fee and commissions management, and helps to eliminate duplicative reconciliations across these functions

In addition to aligning with regulatory standards and collaborating with industry partners, we actively engage with new and existing customers during design discussions, leveraging DMIST standards to provide assurance that our system features are designed to support the current and future financial landscape.

Advancing the Common Domain Model standard

Another key milestone in standardization is the Common Domain Model (CDM) framework developed in collaboration between the International Swaps and Derivatives Association (ISDA), the International Capital Markets Association, the International Securities Lending Association and facilities handling trade processing of repo, securities lending, bond and derivative transactions. The CDM is a standardized data and process model for trading and managing financial products throughout the transaction lifecycle. I was honored to recently participate in a panel on digital transformation hosted by ISDA and Imperial College Business School wherein we discussed standards, automation and applications for the CDM within the context of broader technology and industry innovation.

Over time, firms began to represent events and processes in different ways according to their own unique systems. The CDM solves for this variance by established a standardized set for those representations to facilitate consistency and interoperability, enabling firms to better manage risk, redirect resources spent manually reconciling trades and leverage process automation.

One area seeing momentum for CDM is in interest rate swaps (IRS) clearing, helping to unify the operating landscape for CCPs that want to expand amid growing clearing volumes and member firms that will benefit from streamlined operations across jurisdictions.

Standardization the foundation for growth

Complexity continues to persist, creating problems not only for day-to-day operations but the future of markets. Alignment through standardization will be central to unlocking the business opportunities of tomorrow while also eliminating barriers to growth today.

Standardization has proven to be the difference before: An exponential increase in world trade during the 1970s is commonly linked to, among other macro factors, the global standardization of shipping containers, putting an end to complicated and disparate methods used in ports across the world.

Adoption of standards in the trade lifecycle similarly promises to smooth the path to growth, and Nasdaq Financial Technology is committed advocating for adoption while leading the way in our products and service.