DMIST Publishes Final Standard for Average Pricing

5 June 2024

FIA and DMIST, the Derivatives Market Institute for Standards, jointly announce today the publication of the Average Pricing Standard.

This second standard published by DMIST supports the final standard for Improving Timeliness of Trade Give-ups and Allocations (30/30/30) released in June 2023. The lack of standardized average price functionality across CCPs was cited as one of the issues that prevents processing trades on Trade Date.

This Average Pricing Standard calls for Central Counterparties (CCPs) globally to adopt certain minimum standard average pricing functionality. Standardized functionality will help drive consistency and improve the current allocation and timing issues associated with average price order workflows.

Samina Anwar, Global Derivatives Operations Director, Cargill: “The introduction of this new, industry-wide standard will benefit all market participants who use average pricing. The standard will help end users make the allocation process more efficient and reduce risk by minimizing market-specific exceptions. End users can take advantage of on-CCP average pricing and be confident that their allocations are fair and equitable.”
Melanie Weber, Director, Derivatives Clearing Design, Eurex Clearing: “This Final Standard is important for CCPs. Now they have clear and industry-wide agreed guidance on the minimum standards for Average Pricing. The more standardization we can agree in the industry, the better the industry is able to focus on innovations for the global markets while ensuring overall market reliability even in high volume times.”  

Meher Sutaria, Managing Director and Global Head of Operations, J.P. Morgan: “Average pricing is one of the reasons that trades are not allocated to the accurate CCP position account on trade date. We expect this new standard to improve the overall timeliness of allocations, drive operational efficiency and reduce risk. It will help the executing and clearing members comply with the 30-30-30 standard and improve the client experience.”

Walt Lukken, President and Chief Executive Officer, FIA: “The release of the Average Pricing Standard marks another step forward in improving operational efficiency for all futures and options market participants. This is the reason FIA launched DMIST and it is gratifying to see the publication of another standard with more to come.”

Don Byron, Head of Global Industry Operations and Execution, FIA, Executive Director, DMIST: “DMIST was founded on the principle that working together in the spirit of collaboration and trust could help make the industry more efficient and reduce risk for all market participants. That vision is being realized with the publication of the 30/30/30 Standard and now the Average Pricing Standard, which address two of the industry’s biggest pain points. Building on the success of the first two standards, collaboration on three additional standards is underway as well as implementation and adoption of the two final standards.”

Final Standard

This Average Pricing Standard applies to all CCPs globally. It calls for CCPs currently offering average pricing to review their functionality and adapt to the minimum functionality standards set out in the Functionality Table. For CCPs that currently do not provide on-CCP average pricing, the final standard provides a roadmap to develop a globally recognized average pricing service.

The final standard includes a 16-point Functionality Table that specifies General Standards that CCPs should apply to their average pricing service. It also includes functionality for Average Price Grouping and Cash Residuals and specifies what should be included in Documentation.

The General Standards section calls for average pricing functionality to be made available for all products and CCP systems to support a minimum decimal precision of seven and a maximum of 10. It also enumerates what information should be available to members in the CCP GUI.

The Average Price Grouping section covers minimum product grouping criteria and lists what transactions should be excluded from grouping. It also encourages CCPs to consider offering an alternative to traditional average pricing that uses notional value.

The Cash Residuals section specifies that the CCP should automatically calculate the cash residual and it should be maintained throughout the clearing process and included in end-of-day reports. It notes that the Cash Residual should always be a payable amount.

Using a CCP’s average price system has several advantages. First, it provides the ability to automate the average pricing process from order entry through clearing, using a broker’s middleware system to interact with clearing. On-CCP average pricing can also significantly reduce the number of Allocations in the system by consolidating all fills into one Allocation group. Clients can be confident that using on-CCP average pricing will help them meet their regulatory obligations to achieve fair and equitable Allocations. 
The Average Pricing Standard is one of several standards that DMIST is considering to support the 30/30/30 standard. Future consultation papers will seek comment on a universal order identifier to be added at order entry and persisted through the execution and clearing process, position transfers, and self-match prevention.   

With the publication of the Average Pricing Standard, DMIST will convene an Average Price Workstream to oversee implementation and adoption.

For questions regarding DMIST, contact Don Bryon at  +1 202.772.3090  or Contact FIA Media Relations for other inquiries.