Moving Forward With FIX in South
Africa
Robin Strong, Principal Architect
Charles River Development
Moving Forward With FIX
• The Current State Of Play
– Barriers to FIX adoption
– Common FIX Assumptions
• What’s “Hot” Right Now
– The Next 12-18 Months
• Further FIX Development
– The Longer Term Plan
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The Current State of Play
• Widely used in equity trading
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Handles large numbers of transactions
Supported by all third-party equity OMS
Supported by most sell side firms
FIX 4.0 and 4.2 are most common standards
Fixed Income and Allocations in early stages
FX and Derivatives just getting started
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Barriers to FIX Adoption
• Don’t have FIX engine or OMS doesn’t support FIX
• Required functionality is always in the next version of FIX
• Limited vendor support in local trading locations
– Sell-side brokers
– OMS vendors
– Network coverage
• “Local” instruments may not be supported
• Don’t want to change internal workflows
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Common FIX Assumptions
• Assumption #1: FIX is implemented with a universal standard
• Reality:
– Basic equity is “plug & play”, but certification is required
– FIX for basic equity trading is easy to implement
– FIX network selection plays a role in extensibility and may
determine supported features
– Fixed Income and FX are still in formative stages
– Many different versions of FIX are supported
– Not all FIX workflows are supported by all brokers
• Cancel/replace
• Filled order adjustments
– Flexible configuration is critical
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Common FIX Assumptions
• Assumption #2: All FIX messages are supported
• Reality:
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Most of the basic equity order flows are supported
List messages are still early stage for some brokers and OMS
Bid request messages are not generally supported
FIX allocations are not generally supported
(including the complex workflows that are required for postexecution processing)
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Common FIX Assumptions
• Assumption #3: FIX eliminates errors
• Reality:
– FIX can significantly reduce common errors
– FIX can significantly increase speed of trading
– FIX ease of use can necessitate user controls
• Flexible system configuration to support workflows will help
• Limits and thresholds can help mitigate errors
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Common FIX Assumptions
• Assumption #4: FIX is a moving target (4.0, 4.2, 4.4…)
• Reality
– All core trading workflows are complete as of 4.4
– Focus had been on additional tags to support instrument
definitions for other asset classes
– Embedded FpML document solves this issue
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Common FIX Assumptions
• Assumption #5: All asset types are supported in FIX 4.4
• Reality
– That’s true, there just may not be anyone on the other end of the
line to receive your messages!
– Embedded FpML is a brand new specification and not widely
supported at all yet
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Common FIX Assumptions
• Assumption #6: Fixed Income and Derivative workflows are
only slightly more complex than equity workflows
• Reality
– Exchange traded instruments are easier to trade
– You don’t always know the exact instrument you want to buy!
– The bidding process for bonds is complex and hard to automate
(Thomson paid $500m for TradeWeb)
– Most sell-side brokers have fixed income and derivative trading
systems they supply to customers – not all support FIX
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What’s “Hot” Right Now
• Algorithmic trading
• Best execution
• Allocations and post-trade processing
• FIX for Fixed Income
• FIX for FX and Derivatives
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Algorithmic Trading
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Automated trading algorithms implemented by brokers
Basic support in most OMS, some better than others
Custom FIX tags, now “almost” standardised
More complex algorithms need additional tags
Some order routing networks (generally hubs) cannot easily
support custom tags
• Potential regulatory issues (how can you prove that broker
algorithm X gave you best execution?)
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Best Execution
• FIX makes it easier to assess Best Execution
– ITG TCA, Plexus, Elkins McSherry, Abel Nozer, QSG, etc.
– Required for MIFID compliance
• Ability to track broker performance
(slippage, execution times, etc.)
• Better commissions and fees management
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Allocations & Post-Trade Processing
• Starting to become generally supported
• Will likely standardise around FIX 4.4
• Complex workflows may not be supported by all OMS or
sell-side firms
• Could require a separate settlements module(s)
• Custodians will likely stick with ISO 15022
• Issues around maintenance of SSIs
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FIX for Fixed Income
• Early adopters on FIX 4.2 and moving to FIX 4.4
• FIX allocations supported
• Initial 4.2 development was custom solution but used 4.4
tags to ensure forward compatibility
• Initial workflows were “backwards” from OMS perspective
• Requires complex logic
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Unsolicited executions
Order matching
Security master set-up
Allocation fairness criteria
• Requires organisational workflow changes
• Will require further development to truly succeed
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FIX for FX and Derivatives
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Some centralised counterparties did not want FIX
Early adopters on FIX 4.2 and moving to FIX 4.4
FIX allocations supported
Requires complex logic
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Pre-trade allocation messages
Non-blocking of trades
Fixed currency master definitions
Cancel/correct mechanisms
• Requires organisational workflow changes
• Will require further development to truly succeed
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Further FIX Development
• FIX 4.4 is almost complete for most trading requirements
• Equity
– Improved Program and List trading
– Better algorithmic method support
• Fixed Income
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Overcome end user objections
Support inventory and search mechanisms
Capture bidding process
Solve pre-trade compliance and allocation anomalies
Handle the data completeness requirements
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Further FIX Development (cont.)
• FX
– Hit the quote and RTP capability
– Cancel/correct workflows
• Derivatives
– Better handling of OTC products
– Limited demand for this via FIX just now
• For everyone
– Integrate the post-trade workflows (matching, confirmation,
settlement instructions, etc.)
– Better integration with ISO15022/20022, FpML and other
industry standards
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Moving Forward With FIX
in South Africa
Robin Strong
Principal Architect
Charles River Development