How Standards Organizations Work

Standards exist across industries and create efficiencies and cost savings for many. But the world of standards is not as simple as it initially appears. In this series, we’ll examine why standards matter, what kinds of questions to ask when standards are being created, and what this all means for the financial services industry.

Serving the needs of a specific community, standards can have significant positive effect not just for that group, but also on society as a whole. But the establishment of standards should always be weighed against the potential for improper commercial exploitation, possible barriers to change and the cost implications associated with revising an existing standard versus adopting something new.

Given this, we should examine the organizations that create and maintain standards. First, there is no global standards-setting authority and no federation that coordinates all the various standards efforts. In the majority of cases, participants are volunteers with their time and effort effectively donated by individual firms for the greater good.

No single model solves for all problems. Understanding the organizations involved, the representation allowed (or not allowed) and the kind of expertise each group has is critical for the industry, users and regulators to determine where to address certain problems or approaches for particular information or expertise.

Much like standards themselves, there are communities that support different organizations, each with different membership models and focuses. While ‘de facto’ standards exist outside formal standards organizations, implementation models vary. There is also a level of commercial interest by some participants, which has an impact on promotion (lobbying/mandates), use (or restrictions), and functionality (or lack thereof) of some ‘standards.’

It would be wrong to point to one group and say, “That is the right way to do standards.” On one hand, the International Organization for Standardization (ISO) has a long history of issuing global standards with meaningful and far-reaching implications. On the other hand, an organization like the Financial Information Exchange (FIX) was created to address the specific needs of front office communications about pre-trade and trade details for a specific community.

ISO provides a needed function of coordinating multiple national and pan-national standards organizations and regimes. Where there is a specific use-case that can be applied consistently, an ISO process makes sense. ISO even adopts standards created by designated ‘liaison’ organizations when they align with a similar ISO standard or fall into an interest area of a working group. However, ISO membership is restricted to limited and nominated participation. While this ensures democratic and equal numerical representation for each country member, it does introduce practical issues when addressing specific, bespoke or localized needs.

That’s to say that while there is good work being done by ISO, it is not the sole standards organization. Specific interest group-led communities are also necessary and contributing to the world of standards.

Organizations such as the W3C (XML, HTML, CSS), FIX Organization (FIXML), ISDA (FpML) and Object Management Group (FIGI, FIBO, CORBA) are examples of global standards bodies that have more open membership policies, allowing more firms to participate (and in some cases, individuals). These structures are more appropriate for their constituents and functions than going through an organization like ISO.

This kind of membership structure encourages greater participation from interested parties (ISO allows liaison organizations, but they must go through a vetting process and do not always have equal representation). This open membership prevents domination by one or a few specific sectors through wider participation. It also tends to lend more to a larger population and variety of specific subject matter experts being involved in the process. This model produces better, faster results when problems are less homogenous, are highly variable and need greater flexibility.

Two other kinds of related organizations also deserve mention. Independent organizations and individual firms that provide specific services commonly end up creating ‘de facto’ standards. In instrument identification, RIC, SEDOL, and RED codes are all ‘de facto’ standards used in specific processes based on trade lifecycle, jurisdiction or asset type.

Support firms and organizations also play a key role in support of standards. Registration Authorities, such as Bloomberg (FIGI for OMG) or SWIFT (15022, 20022, 9362, 13616, 10383 for ISO), administer the standard and provide support services while organizations like ISITC create Best Practices across the industry. Others, such as FIX (FIXML) or ISDA (FpML), do this in-house or as part of an associated foundation.

Understanding these organizations and their expertise is critical for the industry, helping users and regulators determine how to solve problems. Existence of one standard does not invalidate the use or need for a similar existing standard from another organization. Use case and target community is more important than the sponsoring standards organization, and more effort needs to be made to interoperate and coordinate between organizations and their particular ‘standard’ versus competing to be the ‘one standard that rules them all.’

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http://www.bloomberg.com/enterprise/blog/how-standards-organizations-work/