Electronification.
While the equities market has long been regarded as the most electronically sophisticated trading ecosystem utilizing the most advanced technologies, other asset classes are also beginning to narrow the gap. With trading in other asset classes migrating from telephony and voice trading to the digital realm, there is an increasing need for secure, reliable and efficient connectivity.
Enter the FIX Protocol. It isnt just for U.S. equities any more.
Fixed-income and foreign exchange trading markets have become increasingly electronic as broker-dealers and exchanges evolve to meet the institutional investors demands for transparency, liquidity, efficiency and security, making the need for universal, uniform and reliable connectivity system readily apparent.
Jason Radzik, Managing Director, Head of Americas Derivatives Execution & Clearing at BNP Paribas told Traders Magazine that connectivity is equally important in trading operations as it is in clearing. And the sell-side is going to need access to the best connectivity solutions if it wants to keep its buyside clients.
Connectivity is critically important to electronic trading, not only in speed and availability, but also for product delivery and client customization, Radzik began. The sell-side will need to employ the most reliable, flexible and efficient connectivity solutions if it wants to keep its buy-side clients happy. At BNP Paribas, we take pride in the ability to offer a state of the art connectivity solution that supports our clients multi asset trading needs with a single, global platform.
Radzik, who also spent time on the buyside at SAC Capital before joining BNP, added that institutional traders, who are trading program trading baskets across several asset classes or complex multi-leg orders, are ripe for a more efficient means to conduct their business. It is here where connectivity providers such as Ullink and others can assist the buy-side in becoming more efficient.
Vendors recognize this trend and know that to be a one stop shop they need to offer multiple solutions for multiple products and bring them all under one umbrella, Radzik said.
Ullink, for example, provides its user with several services all under one roof – or system in this case. One service the firm offers is NYFIX MONITORING,which provides traders, compliance and support people with a comprehensive view of orders, and offers filtering and navigation features. There is also NYFIX MATCHING, which is a post-trade allocation and matching service using FIX and NYFIX TCA, a post-trade cost analysis system featuring reports produced by LiquidMetrix.
Richard Bentley, Chief Product Officer at Ullink, added that increased regulatory focus has driven technology providers such as Ullink to bring as much as they can to the table – connectivity and additional services – via a unified language. And given FIXs long and rich history, it has become the lingua franca for all industry participants, from the buy side to the sell side to the execution venues themselves.
FIX automates the processes that were at one time highly manual, Bentley began. We wanted to be the market standard. FIX today is being used for all different asset classes, cash equities, bonds and government issues, corporates, FX etc.
FIXed Income
And FIX development hasnt stopped. Bentley told Traders Magazine that FIX continues to develop products and protocols for derivatives and the OTC market, not to mention the structured products sector. He cited Contineo, an initiative Ullink is working on in Asia that is backed by biggest banks in structured trading, to help bring a standardized language and network for brokers and the buy side to connect.
Were leveraging FIX here in these new markets to continue to bring liquidity via the brokers and give the buy side direct connection to trading venues regardless of asset class or geography, Bentley said. FIX is also adapting to handle different market models and tools like IOIs and RFQs, as well as central order books for the typical equities exchanges. NYFIX has evolved to provide venue and broker access cross-asset.
A former Director from the FIX Trading Group said that FIX, given its established prominence in the market, is the logical choice for firms to use as a great deal of its connectivity technology is time-proven and in place at so many firms. Whether one is an asset manager or broker, FIX is in place with their systems and requires minor tweaking to accommodate future needs – such as working for an additional asset class or exchange.
People have always wanted to use FIX, as it was easy for them and it was already a functioning part of their systems, the former Director said. NYFIX (now Ullink) over the years has understood that FIX is an open standard but not everyone is able to implement that standard. Even if a firm doesnt have FIX as its standard, theyll get in the middle and help get firms adapted or help them get a FIX translator.
And the Director knows about FIX, as he worked for NYFIX for eight years and before that nine years at Thomson Financial- all working on the FIX Protocol. He knows the extreme adaptability of the protocol – especially when the asset class in question is traded electronically. Even for more difficult asset classes, such as fixed income, where electronic trading is in its infancy, FIX can be employed.
Fixed Income is a bit more difficult to onboard FIX, he began, as it has a price discovery element during the trade making it a little harder. But FIX can be employed here to assist in the effortless flow of information. All trade order data can still be sent via FIX and updated in real-time without re-keying it.
The former official also added that equally important was that many asset managers consider it mission critical to have FIX.
Asset managers will tell you if their counterparties dont have ability to trade via FIX, they will refuse to trade with them, he said. Some managers even have a mandate that if their FIX connection goes down, their desks will have to stop trading.
The Final Frontier
With FIX penetrating asset classes and several geographies, what can be next?
Ullinks Bentley said that while FIX adoption is ubiquitous in North America and extremely prevalent in Europe as well, there is still room for growth in Asia-Pacific East. He told Traders Magazine that the only other real standard being employed that can compare to FIX is SWIFT. However, there differences between the two and it is important to note these.
Most SWIFT traffic runs over a single network called SWIFTNet, which is operated by the same organization that defines the SWIFT protocol and related standards; the standards body for FIX is a separate organization and networks and other software are provided by an array of vendors who are independent of the standards body, Bentley explained. In terms of electronic trading, SWIFT is prevalent at the end of the process in the transfer of assets involving payments, whereas FIX has grown to dominate almost all other aspects of the electronic trading life-cycle.
