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Investment firms have recognized the need to
streamline and automate processes in an effort to eliminate
redundancy, to reduce risks and to become capacity neutral.
Change programs that achieve these aims are generally referred
to as Straight Through Processing (STP) initiatives. While
some companies have achieved a high degree of integration
among applications, they remain dependent upon more cumbersome
interactions with external counterparties that are really part
of their total investment management process.
When Fidelity and Salomon demonstrated the benefits
of message-based trading using mutually agreed formats,
investment managers realized that the adoption of a flexible
common application protocol would allow the implementation
of true STP - the integration of processes across organizational
and geographic boundaries. By extension, software companies
are also adopting industry standards in an effort to remain
competitive. As firms have adopted best-of-breed application
architectures software vendors have also been forced to
address open industry standards as a means of providing
easy integration. As a result, the whole community is hungry
to adopt industry standard protocols.
Financial Information eXchange (FIX) has become the
industry-wide agreed set of message formats and data
definitions for the exchange of data between counterparties.
FIX Protocol Limited (FPL) have spearheaded the industry-wide
adoption of a single open financial services message set, and
have backed up their technical specification with widespread
promotion and education. Buy-side traders and sell-side
dealers now routinely hold message-based electronic
conversations. An investment manager's trading room can now
work seamlessly with a variety of brokers, exchanges and ATS'
using efficient FIX based services.
Another general open standard that has had an impact
on the industry is eXtensible Markup Language (XML). In the
same way as HTML can be used to build pages that work with any
browser, so XML can provide a foundation for interface
mechanisms that can work across any application. XML helps
provide meaning and context to the applications that process
data. As a result, data can be more easily exchanged between
applications because this additional data definition
information is included with the data in the exchange. At
least in theory, the myriad of complex product specific file
formats and APIs that exist between applications today can be
eliminated when XML is adopted.
FIXML
Since XML is about data definition,
and FIX is about data exchange, the two standards have some
overlap. Both positively impact data manipulation. FPL soon
realized that if these standards worked together then new
opportunities for simpler architectures could be opened for
investment managers. The complexities of the traditional
'tag=value' representation of data fields in FIX could be
replaced with a simpler XML based structure. With this
thinking in mind FIXML, the newest version of the FIX
protocol, was released in June.
Interoperability is another aspect of XML that makes
it desirable as a long term component of FIX. FPL now has
joint working parties with SWIFT, ISDA (International Swaps
and Derivatives Association) and the FIA (Futures Industry
Association) that center on the XML based vocabulary. All
these bodies are working toward the definition of a single
financial services message set that can accommodate the bulk
of the global industries complex requirements.
Allocations
One of the primary additions in FIX 4.2 is allocation processing.
Brokers, investment managers and ETC providers are currently
grappling with the re-engineering implications of FIX allocations.
Next year, Thomson plans to have FIX 4.2 support in place
within their products. Brokers are also currently upgrading
to 4.2 in preparation for widespread expansion beyond single
block order placements and fills.
Increasing electronic order flow
volume
While organizations are watching the progress of process
enrichment and additional instrument coverage within FIX
their main energies seem to be going into increasing electronic
order flow volumes. Reducing operational errors and improving
active order management are still the highest priority for
organizations and so the more orders that are processed
via FIX the better. With a FIX investment already in place
increasing geographic coverage and adding more brokers provides
firms with a more immediate payback.
Conclusions
Wherever your organization sits
on the FIX maturity scale there is something happening of
interest. FIX continues to be one of the most active industry
defining initiatives and this will continue for the next few
years. Whether your interest is reducing operational risk,
implementing allocations, expanding into fixed income, or
using XML, there now seems something for everyone in the world
of FIX.
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