Preliminary Report on Standards in Global Financial Markets

This paper considers the ‘market failures’ that can block standardisation and recommends actions to overcome these barriers and so ensure greater realisation of the efficiency and risk-reduction benefits of standardisation in global financial markets. It first reviews the economic benefits of standardisation and the ‘market failures’ (lack of co-ordination and vested interests) can prevent these being achieved. It then looks at standard setting institutions in a range of industries (engineering, the global supply chain, the internet) developed to overcome these market failures, comparing these with the relatively underdeveloped institutions of standards development in financial services. It goes on to examine the development of both transaction and data reference standards in financial markets, finding that much remains to be done, especially on data reference standards where the limited progress to date has relied largely on regulatory mandate. Finally it recommends three practical actions to improve standardisation in global financial markets: (i) Promotion of discussion and dialogue across industry; (ii) engagement of senior management in the task of building cross industry support for both standardisation and standards institutions; and (iii) renewed effort, by researchers and practitioners, on identifying specific opportunities for using standardisation to promote business efficiency and improve market transparency.