The push by the buyside to garner more information from their brokers about their trades is bearing fruit.
The buyside working group of FIX Protocol Limited has convinced a group of about two dozen brokers to increase and standardize the information they deliver to their institutional customers as part of their trade reports.
FPL has written a draft paper that outlines the fund managers’ needs, specifically the identities of the venues to which their orders are sent. The group is circulating that paper among other brokers and money managers.
"The buyside wants to know what is going on as it is going on," said Scott Atwell, manager of FIX trading and connectivity for American Century Investments and co-chair of the FPL global steering committee. "This is valuable information. It’s important that we know where our flow is being executed."
The FPL initiative follows a year of grumbling by the buyside over the paucity of information they receive about their brokers’ order-handling practices. As the stock market has fragmented into dozens of dark and lit trading venues, the buyside has requested more details about which venues receive their orders.
The new information will not only make clear for buyside traders where their orders are being filled, but also if they are the optimum venues. By comparing their fills against the relevant market data, the traders will know if their orders were sent to the right place at the right time.
The information is also expected to help money managers make judgments about whether or not their brokers’ routing decisions were made to benefit the broker or the client. Rebates received from maker-taker venues and the use of proprietary dark pools are flash points for some on the buyside.
FPL is the pan-industry group of traders and technologists charged with managing and promoting the FIX messaging standard. Members of the buyside working group include such large shops as American Century, Wellington Management, Capital Group, Franklin Templeton and Fidelity Management & Research.
The initiative is not a major reworking or expansion of the FIX protocol, the messaging language of trading. The group is merely asking the sellside to fill in three fields with their post-trade reports. Two of the fields already exist. One more has been created.
"It is not a change to the specification," Atwell said. "Rather, it is a best practices document."
First and foremost, FPL is requesting that brokers fill in the "Venue" field, which denotes where the execution took place. The data will include the names of the exchanges as well as the dark pools-wherever the order was filled.
The FPL is not, however, adding a field or fields to denote the names of the venues the order passed through, but did not execute at. Many on the buyside are clamoring for that information, as well.
In addition to venue, FPL is also asking the sellside to populate the "Last Capacity" field. This denotes whether the broker handled the trade on an agency, principal or riskless principal basis.
Finally, FPL has created a new field within FIX protocol to denote whether the order took liquidity or provided it. Many exchanges and ECNs price their services by charging liquidity takers and paying liquidity suppliers.
For some buyside traders, none of this information is new. Their brokers have been supplying it in real-time or end-of-day custom reports for a while. But others have received nothing. The amount and types of information received and from which brokers varies, depending on the buyside desk.
In addition, brokers may provide the information in different ways, using different nomenclature for venues, for example, or using different fields for the same information. FPL hopes the initiative will lead to consistency among broker practices.
David Lewis, Franklin Templeton’s head of U.S. stock trading in Fort Lauderdale, Fla., said the improved transparency allows traders to take greater control of their orders, making it easier to adjust a strategy when they need to.
The thrust of FPL’s work is to get the sellside to transmit trade information to the order management systems of the buyside. Most of the members of the working group are large firms with their own systems, but other buyside desks rely on vendor OMSs. Those vendors may have to make changes to their systems to accommodate FPL.
Not every broker is waiting for a push from FPL to start delivering venue information. Wedbush Securities, for instance, recently launched a Web page that gives its customers immediate access to their trading information. It shows them where they executed; where they passed through; whether they took or supplied liquidity; and other relevant-so-called liquidity flag-data.
The information gives the buyside more control over their brokers’ algorithms, said Kevin Beadles, in charge of equity trading at Wedbush. "Our competitors are slicing and dicing buyside orders and putting them in all these different places. So the institutions have less control over their orders. We give it back to them. If they see they are capturing more liquidity on Nasdaq OMX BX, for instance, they can direct more of their flow to BX."
