Cost cutting has become a fact of life everyday on Wall Street and especially in the equities markets where commissions have been stagnant for years. While staffing, broker lists and electronic pre-trade services have all been trimmed, now is the time to look at the post-trade side of things and use the FIX protocol to do so.
That’s the opinion of Alpha Omega Financial Systems, who said it U.S. trading desks can shave upwards of 30 percent or more off U.S. their domestic post-trade equity trading costs. It recently published a four-page white paper on the subject, “Looking Back to Shape the Future.
How? And what new technology will be needed? None, said Alpha Omega, noting that existing technology could make those cost reductions reliably and safely, namely through more efficient use of the Financial Information eXchange (FIX) Protocol. FIX can reduce risks, improve efficiencies and cut post-trade costs for both brokers and assets managers.
“Today, we face a similar landscape for the adoption of FIX for post-trade. A number of large, global asset managers have identified post-trade as an area where they are looking to improve efficiencies, reduce costs and capture more alpha,” said Ignatius John, president and co-founder of Alpha Omega.” “As with the evolution of trade execution, the efforts of these early adopters is driving the industry’s migration towards FIX for post-trade.”
John also said that besides cost savings there is also need for more than one qualified post-trade vendor in the U.S. to submit electronic trades for final settlement to the DTCC. “There are both significant technology risks to a single point of failure in the world’s largest equity market, as well as a lack of benefits of competition that could spur innovation and other direct benefits, such as a faster, more seamless migration to T+2,” John said.
John explained that FIX-based post-trade will further advance Straight-Through-Processing (STP), enabling traders to allocate, confirm and affirm their trades in near real-time. In addition, the FIX protocol’s open architecture will allow for the continued development of innovative post-trade solutions, both internally built and vendor-provided.
The FIX post-trade process provides bilateral matching directly between the asset manager and broker/dealer. Execution and allocation details can flow seamlessly from an order management system to the post-trade system and on to the counterparty immediately after trade execution. In short, the post-trade process becomes a natural extension of trade execution, relying on an established protocol and infrastructure to transmit trade details between counterparties.
