A key industry group is looking to expand the amount of information included in trade confirmations, giving the buyside greater detail about their trades—and increasing transparency in the marketplace.
The FIX Protocol Ltd. Americas buyside working group has been trying to amend FIX Protocol to make it easier to track orders. It is currently considering the adoption of new FIX tags later this year, probably sometime after second quarter.
Many on the buyside have been looking for greater transparency about where their orders are routed and where they eventually get executed. This stems from worries that orders might get gamed by predatory traders. The thinking is that if the buyside has a better accounting of where their orders go, they could avoid toxic venues.
Currently, the FIX data the buyside gets back can be misleading, according to Brian Lees, an associate vice president and software development manager at Capital Group Companies and a member of the working group.
A venue might be listed as the last market for an order, but if the order was routed out, it means the order was actually filled at a different venue. Currently, FIX Protocol gives a venue and a separate tag which indicates if the order was routed somewhere else. Unfortunately, the protocol does not indicate where the order went.
Tag 30 is supposed to indicate last market, and the working group wants to make sure that it actually does tell traders the last market where an order went, Lees said.
Another area where FIX Protocol has trouble is distinguishing between lit and dark markets when they are both run by the same operator, such as an exchange.
“Some venues may have both a dark and a lit portion, and they may not have registered the dark portion as a separate exchange,” Lees said. “We really want to be able to differentiate dark and lit volume.”
While the industry has made much progress in understanding where an order is executed, it is also important to know where an order went before it got executed, according to John Goeller, managing director within global execution services at Bank of America Merrill Lynch.
This can be especially important when a trade gets split up across multiple venues but only executes at one. That’s potentially leakage, Goeller said.
Even if the buyside gets all the routing data it wants, some firms might not have the resources to analyze all of it, according to Justin Schack, managing director for market structure at Rosenblatt Securities. He said the copious amounts of data generated for the buyside could require the help of third-party vendors.
“It’s a good thing to be collecting all this data, but then you have the problem of what do you do with it all,” Schack said. “Some of the really big shops out there have sufficient internal resources to be able to process all this information and actually draw some conclusions. But not every firm is going to have those resources.”
Schack said many buyside firms will have to think long and hard about whether they can handle all that data themselves or whether they need to work with a vendor that will help them sift through the information and make well educated judgments based upon it.
