FIX Beyond the protocol… Paul Foley Partner Manager Financial Markets Microsoft Sept 17 th 2004
Emergency Procedures In the event an evacuation, there are two different alarms: Alert signal l The alert signal is an ‘intermittent tone’ with voice instructions. This is the standby to Evacuate. It does not mean evacuate the building. Evacuation alarm l The evacuation alarm is a ‘continuous tone’ with voice instructions. All personnel should leave the building immediately via the nearest fire exit and congregate at the designated Fire Assembly Point as directed by the fire marshalls. Testing l There will be an alarm test today at 10 am. No action needs to be taken – this will only last for a few seconds.
Agenda l Welcome Peter Randall FIX Protocol ltd Ø l Kevin Lee Solution. Forge Ø l SI Fresh Kevin Houstoun FPL/Rapid Addition Ø l Utilizing FIX beyond the OMS Coffee John Wilson Man Financial Ø l The Third Way Stuart Plane Citadel Associates Ø l FPL update FIX repository and financial messaging infrastructure Kevin Bourne HSBC Ø Fix’ing the future Refreshments
FIX Protocol Limited Announcing the latest FPL initiatives and how they will affect all FIX users, Peter will bring the audience up to date with the latest FPL community initiatives and will debate the increased importance of compliance.
FIX: the purpose To improve the global trading process by defining, managing, and promoting an open protocol for real-time, electronic communication between industry participants, while complementing industry standards.
FIX: the last 10 years • • • Salomon & Fidelity conversations Competing models, open or closed? Generic or Customised? Broader industry background Growth of quantitative management style • Increasing product sophistication
FIX the next 10 years • • • Message area ratio Fixed Income certification Algorithmic Trading Foreign Exchange Primary markets Allocations & SSIs
…to improve the global trading process • • nearly 60% of respondents reported that they were making use of FIX within their organisation in some capacity a further 27% reported that they are planning to implement FIX in some form within the next 12 months amount of order-flow sent using FIX continues to grow. 90% of respondents that undertook equity business used FIX. sizeable 21% of firms in the equity space indicated that all of their equity activity was conducted over FIX US buyside 77% are FIX users, US sellside 97% are FIX users Nearly 50% of buyside firms expect more than half of their flow to go via FIX in 2004/5 during the past 10 years volumes, values and complexity have increased dramatically, in part this has been enabled by FIX
…an open protocol • • • Open in the sense that the specification is published on the website and is available for free to developers Open in the sense that industry participants are encouraged throughout the life cycle of a version to help develop, improve and contribute to the protocol and its acceptance Open in the sense that the protocol is both platform and operating system independent, neither is it tied to an individual market or a specific set of business rules Open in the sense that additions and extensions are constantly being developed, worked on, tested and when ready are made available within the aegis of FIX Protocol Limited Open in the sense that the ultimate IP is both mutually controlled and mutually owned
…real time electronic communication between industry participants • • • Between 1990 and 2000 European trading volume increased at an annual compound rate of 30% At the same time electronic trading of shares including direct market access have seen significant commission reductions In the US since 2000, buyside trading has increased by 18% but now nearly 40% of all US trades are done by non traditional managers and their volumes have increased by a cagr of 80%+ The benefits of FIX are commonly cited to be a reduction in operational errors, an encouragement of alternative trading venues, and more active buyside order management participation 93% of buyside houses report that they are more likely to want to pass an order to a FIX enabled house
…complementing industry standards • • • FIX is de facto the industry standard for IOI, pretrade, and trading activity. It is being developed by its users into the post trade and allocations space. FIX is not just equities, it is also very active in the Fixed Income and Derivatives space FIX is close to operating a certification plan for certain FI applications with important ramifications for equities & derivatives FIX has a memorandum of understanding with SWIFT to move toward ‘convergence’ with the ISO 15022 standard and is a very active participant of WG 10 FIX sees interoperability as an immediate and attainable goal and is working hard with related standards bodies to achieve this
Compliance • • • Basel II capital requirements Algorithmic / Quanta Trading Regulatory interest SEC / FSA Demands for certification Demands for standards
Join FPL! www. fixprotocol. org
The Third Way Kevin Lee Solution. Forge Limited +44 1277 312304 kevin. lee@solutionforge. com
Subject FIX Landscape – past and present n Different perspectives – risks with current approaches n Approaches to handling those risks n Lighter weight solutions n
FIX Landscape FIX now in its eleventh year n FIX 4. 4 released in 2003 n However… n FIX 4. 0 connections still being deployed n Surprising high number of institutions have yet to deploy FIX (despite large OMS investment) n
Why? Disruption of ‘Big Bang’ OMS deployment n Lack of understanding of the benefits of electronic trading n High costs (FIX engine, communications, support) n Risk n
Risks Order Management System Embedded FIX Engine
Solution Order Management System Embedded FIX Engine Messaging Infrastructure
Benefits n Independence from OMS vendor Limitations with vendor-provided FIX engine n Limitations with OMS FIX implementation n Opportunity to separate out functions n n Addition attractions for Sell-side Maintain client relationships n Contain costs n e. g. , Bloomberg (exchange code mapping) n
Opportunities for Best of Breed Order Management System Embedded FIX Engine IOI Mining Application Messaging Infrastructure
Opportunities for Best of Breed Order Management System Embedded FIX Engine IOI Mining Application ? Messaging Infrastructure
Lighter Weight Solutions Many institutions have existing order management facilities n No desire to ‘big bang’ with large OMS vendor – i. e. , replace existing OMS investment n More recently, the FIX/Excel plug-in seen as a panacea n But… n
Lighter Weight Solutions Excel is a personal, desktop productivity tool n Not designed as a multi-user, secure trading environment n Therefore genuine danger of information (and by implication, financial) loss n
Existing Alternatives n Execution systems are available, but … Traders often put off by complexity n Lack of focus on the key workflows has lead to application ‘bloat’ n Systems generally sit alongside but rarely integrate with institutions’ existing technology n
The Way Ahead…? n Solutions that provide Commoditised independence n Reduced Risk implementation n Highly Intuitive user interface n Flexibility n Interoperability with standard IT assets n Light weight – Zero touch deployment n
C C citadel associates Utilising FIX beyond the OMS Citadel Associates Stuart Plane – Sales and Marketing Director
Introduction • Utilising FIXML 4. 4 beyond the OMS • Setting the scene thus far • What changes in FIXML 4. 4? • How do these changes effect systems other than the OMS? • Practical Example – Fixed Income unsolicited order • Advantages offered by FIXML 4. 4 C C citadel associates
Setting the scene • Traditionally only the OMS has been FIX enabled • Equity orders were only passed between Buy & Sell side OMS systems • The passage of any “complex” information (program trades, derivatives, etc. ) required work-arounds • Organisations are heavily dependant on OMS and FIX engine vendors for latest releases and new functionality as FIX progresses • The past year has seen several OMS players utilise Fix 4. 2 for: • Fixed Income (including allocations) • Algorithmic Trading • FIXML 4. 4 schema version released Jan 2004 C C citadel associates
Setting the scene IOI’s Orders Buy Side OMS Executions Allocations FX, Fixed Income & Algo Trading C C citadel associates Sell Side OMS
Major changes in FIXML 4. 4 • Fundamental change - Component Blocks embedded in standard messages • Standardised format for additional information is now contained within FIX messages such as: • • • OTC information Commission information Security information Allocation information SSI information • Extremely comprehensive coverage in 4. 4 opening up Fix to carry more than just equity orders Is the typical Buy side OMS designed to handle this information? C C citadel associates
How these changes effect systems other than the OMS • Back Office • Clearing/STP environment • Back Office accounting • OTC & Derivatives • Risk Management • Modelling • Asset Allocation • Compliance • Reference Data • Data warehouses • Middleware • All systems holding reference data C C citadel associates
How these changes effect systems other than the OMS Risk Modelling OMS/TCA Yield Curve Data New Securities Underlying Instrument Data Allocations Commissions Standing Settlement Instructions Back Office C C Data Management Integration & Workflow Asset Allocation citadel associates
Practical Example • Unsolicited Fixed Income order used as an example • Buy side places order with sell side over the phone • Sell side confirms order verbally and sends executed order to buy side via FIX • What happens if the security that has been purchased does not exist in the Buy Side organisations systems? C C citadel associates
Practical Example Order Execution Buy Side OMS USD 10 Mil, BBB Rated, Auto Sect, Dur 3. 8 – 4. 1 USD 10 Mil, Ford Motor Credit 7. 375% 28/10/09 FIX Executions Insert Order into OMS The security does not exist? • Create the security in the OMS • Create the security in the reference data repository enabling other systems to utilise this new security info C C citadel associates Sell Side OMS
Getting the data into other systems • With FIXML 4. 4 this is easy! • FIXML 4. 4 New Order Message <FIXML xmlns="http: //www. fixprotocol. org/FIXML-4 -4" xmlns: xsi="http: //www. w 3. org/2001/XMLSchema-instance" xsi: schema. Location="http: //www. fixprotocol. org/FIXML-4 -4. . /schema/fixml-main-4 -4. xsd" v="4. 4" r="20030618" s="20040109"> <Order ID="123456" Side="2" Txn. Tm="2001 -09 -11 T 09: 30: 47 -05: 00" Typ="2" Px="99. 25"> <Ord. Qty="10000000" /> <Hdr Snt="2001 -09 -11 T 09: 30: 47 -05: 00" Pos. Dup="N" Pos. Rsnd="N" Seq. Num="521" SID="AFUNDMGR" TID="ABROKER" /> <Instrmt Sym ="ISIN" ID ="US 345397 SM 61" Src ="1" Prod ="9" Sec. Typ ="CB" Issr ="FORD MOTOR CREDIT CO" Mat. Dt ="20080104" Issued ="19981304" Desc = "Ford Motor Credit 7. 375% 28/10/09" /> </Order> </FIXML> C C citadel associates Instrument Component Block
Summary of FIXML 4. 4 • Provides a standardised language to exchange all types of information between Financial Services organisations • Empowers people familiar with XML and web services to create and extract value from FIXML • Enables information embedded in FIXML messages to be utilised throughout the organisation • Facilitates the use of standard workflow, integration and data management tools to handle FIXML Make connectivity easier, cheaper and more reliable C C citadel associates
Coffee break
Reducing Exceptions - Post trade & SSIfresh John Wilson Man Financial
Post trade, pre settlement § Post trade features dramatically improved in Fix 4. 4 § Studies highlighted savings of $100 k pa annum for firms simply from avoiding vendor confirmation costs § Continuous dialogue rather than broken conversation § Greater use of existing FIX infrastructure and relatively easy integration into legacy systems
Settlements § Erroneous settlement reference data is a notable cause of trade fails (37% per Capco 2002 study) § Flawed market infrastructure for SSI data exists l l l Buy & sell sides hold counterparty SSI data to overcome legacy “wisdom” in trade messaging 3 rd party repositories remain costly to use and are poorly maintained, with high errors rates reported Custodians have historically not offered to maintain 3 rd party repositories or distribute data electronically, despite holding the “accurate” records § 14 firms met to consider problems of SI reference data in September 2003, prompted by City. IQ paper § ISITC adopted group in October 2003
SSIfresh members Buy Side Sell Side Custodian HSBCAM HSBC GIS Insight Investment DRKW Northern Trust Morley Soc. Gen Citibank Gartmore UBS BBH Baring Asset Mgt Citibank Man Financial Group assisted by City. IQ, Microsoft and Tradeweb
Working party brief § Define model for maintaining and supplying settlement information as part of the post trade process § Recommend a model to cover all instruments § Use only existing message/data standards § Employ commonly available, low cost technologies offering open architecture
Initiative status § Working Party evaluated a number of models including “STP Lite” proposed by FIX Protocol § Preferred business model determined and outlined in a White Paper in Feb 2004 § Proto-type process environment developed using FIX data elements/messages with web services, in a matter of days l l Biz. Talk used to operate web services SQL Server to replicate custodian and buy side databases
SSI fresh process § Both parties to a trade supply THEIR OWN settlement details on EVERY TRADE allocation § Buy side attempts to dynamically retrieve SI data from custodians (web service) using stock identifier, custody account ref and PSET § If service unavailable, buy side sources SI data from their “locally” hosted database using parameters such as asset type, instrument, PSET, Currency etc § Maintenance of local buy side database independent of trade process l l Updated automatically via “SI data service” from custodians via web service Updated manually in the case of “dinosaur” custodians
Proposed SI infrastructure SI data per allocation Buy Side Sell Side Dynamic enquiries Institutional Delivery Instructions Web service SI data updates Web service Sub Custodian details Custodian
Benefits of SSIfresh § Improved quality of SI data through use made of most § § § accurate SI data records Use of costly 3 rd party services can be avoided Eliminates need to maintain counterparty SI data within buy-side Improves accountability for data quality Relatively cheap and quick to implement Model specifically allows for a gradual migration - Buy side sourcing of data is a matter to be determined in conjunction with custodians
Take-up § Early days but considerable attention being given to the subject § Buy side firms being encouraged to l l Adopt unilaterally adopt White Paper recommendations Engage their custodians to support White Paper model § ISITC working group fostering adoption amongst custodians and resolving teething issues
FIX Repository based Products Infrastructure for Financial Messaging Presenter Kevin Houstoun Director kevin@rapidaddition. com
Introduction l Two themes Ø Ø l FIX Repository Rapid Addition Several Hats Ø Ø Ø Primary author of the FIX repository Co Chairman of FIX Global Technical Committee Co-Leader FIXML Schema WG Member of European FIX Governance Board Software Architect for Rapid Addition
What is the repository? FIX for computers FIX – historically a Word document l Easy for people; difficult for computer l Generate tools, code l Few errors l More consistent approach l FIX can support multiple formats with one piece of work l
What is the repository? Information extracted from the FIX specification l In a different more computer usable format l Currently a series of XML documents and schemas l Can be loaded into a database l Specific SQL can reproduce the specification from the database l To be used to generate future releases of FIX l Has been made publicly available to FIX membership l Will be made available as the core data for future releases of FIX l
Construction l There a number of parts to the repository Ø Ø Ø l Fields Enumerations Components Messages – special type of component Message Contents For each part of the repository there are 4 files Ø Ø *. xml – The data itself *. xsd – The schema for the data *. xsl – A transform to display the data in IE *. html – A page to invoke the transform and display the data in IE
The FIX Specification Data Dictionary Fields & Enumerations – essentially the data dictionary from the FIX Specification - Volume 6 l Fields xml file contains l Ø Ø l Enumerations xml file contains Ø Ø Ø l Tag, Field. Name, Description, XML Name Tag, Value, Description One to many relationship between Tag in Fields and Tag in Enumerations
Components (including messages) l Components and Messages contains Ø Ø Ø Ø l Object ID, Name, Type, Category, Abbreviation, Description Indentation (only used for certain component types) Order (only used for certain component types) Messages are a special case of components that include specific additional information. Messages are the top level application object in the FIX model.
Message Content xml File l Message Content contains § § § § l Object ID, Tag Text, Tag, Description, Required, Position, Indent, Component Object ID Basically the result of selecting all records in from Message Content with an Object ID corresponding to a FIX message is data equivalent to the message table for that message in volumes 1, 3 – 5.
Thus becomes
Why did we build the repository? I’m lazy and I make mistakes. l BUT lazyness can be a virtue. l Asked by Global Technical Committee to help prepare the DTD to match the FIX. 4. 4 release. l Needed to allow me to generate the DTD rather than create it by hand. l This allowed us to apply one design to the whole of the FIX model. l
How have we used the repository? Generated Volume 6 – The FIX data dictionary l Can and will generate all message tables for future releases of FIX l Supports addition of messages and fields for future versions of FIX l Generate FIXimate, FIX. 4. 4 DTD, FIX. 4. 4 Schema. l Ø Ø Ø www. fixprotocol. org Tech / Spec – see links to Repository www. fixprotocol. org Tech / Spec – see links to FIXML www. fixprotocol. org Tech / Spec – see links to FIXimate Cross check FIX specification, are names in message tables same as names in data dictionary. l Pre compile all valid message possibilities and check against FIX design rules. l
Rapid Addition Limited http: //www. rapidaddition. com
Rapid Addition Limited Develops toolsets and solutions that are “enabled” by the existence of the FIX repository. l Management team l Ø Ø Ø l Kevin Houstoun Simon Tarling Clive Browning Apply repository and related techniques to incorporate others standards Ø Ø Ø SWIFT, Fp. ML, XBRL
First Product – Codename “Short. Cut” l l l l l Layer of FIX related messaging enhancements that integrates with Biz. Talk 2004. FIX message handling for equities, cash and program trading from idea to settlement. Special FIXML schema that supports Biz. Talk and FIXML Easily customised to support end user business process Traditional FIX to next generation FIXML converter. … and back Tools to customise and support customisation based on FIX, to ensure an exact fit to your business requirements. Designed to work with technology partners ( Example - Citadel) Flexible Frame work for building OMS, PMS, Ticketing and Settlement Systems, and for linking them to each other.
Why the MSFT Biz. Talk 2004 platform Leverage existing skills l Harness the. NET framework l Build with standards l
Biz. Talk Server 2004: Rapid Addition Orchestration RA Short Cut Orchestrations Activation and Instance Management Rapid Addition Biz. Talk friendly Schema Correlation and Content-Based Routing Universal Message. Box Custom Tag Schemas Message Pipeline Decode Encode Decrypt Encrypt Parse Serialize Authenticate Sign Extract Properties … FIX to XML Encode XML to FIX Decode FIX Session Adaptor Partner FIX Engines Adapters HTTP Web Services MQSeries MSMQ Adapters
Orchestration • Receive New Order Single • Decide Accept or Reject • If Accept Send to Exchange • If Accept Report Acceptance • If Rejected Report Reject
Add a decision
Work or Route? • Here • Rule based • New. Order. Qty > 10000
Drag and drop! • The route to exchange functionality • Drag to the small order size branch of the decision
Call another orchestration • Orchestration for working the order.
Case Study - Typical Solution Pick allocation out of OMS system l Route to broker l Handle exceptions to the normal flow l Re-integrate workflow with manually processed allocations in OMS l
Partner – Citadel – Retrieve the allocation
Rapid Addition – Send via FIX
Rapid Addition - Handle the exception
Summary Repository l Improve FIX standard management process l Improve tools for FIX users l Improved products from FIX vendors Rapid Addition l Native workflow modelling l Repository Native l Allocations l Order Workflow l Links to other messaging protocols (SWIFT) l Low TCO
Rapid Addition Limited http: //www. rapidaddition. com
e‘Fix’ing the Future? The Impact of an Electronic Trading Standard & the Creation of Virtual Markets Presented by Kevin Bourne Managing Director Equity Trading HSBC Investment Bank
forces of change performance consolidation trustees & consultants long / hedge alpha creation operating costs benchmarking transparency liquidity risk providers transaction costs product models performance models price discovery market infrastructures technology regulation common product standards global intra day connections low cost of entry for systems low cost of global networks ipv 6 cp 176 unbundling cp 154 best execution isd basel 2
ethe effect of automation source: london stock exchange
e‘off exchange’ blocks * Source Thomson Autex
e‘fix’ing the future the financial information exchange protocol (fix) was established in 1993/4 fix is a common messaging language which allows real time and secure electronic communication between financial institutions fix is an open protocol which is platform and vendor neutral fix does not mandate specific communications carriers or security protocols fix connects all counterparts and infrastructure providers for all products & asset classes, pre trade / post trade globally in real time universal standardized infrastructure + commoditization = industrial revolution standard free 60% done universal
the industry opened a pandora’s box new systems were required to manage fix in all its detail and complexity old systems needed to be modernised to cope with fix’s structure and order fix is still a developing protocol with various iterations having been published therefore upgrades are needed global low cost ip reduced communications costs but fragmented communications provision the intellectual input into the protocol was and remains very significant and fix moved faster than many senior managements teams understanding of the impact trading floor users however started to understand how fix could help them build and deploy new business processes and gain market advantage
e fix connectivity, key issues pre production ip connection method hub & spoke, peer to peer, vpn, which network do your clients use economics overpriced circuits based on bandwidth usage testing implementations for variances production resilience total mission criticality for all systems performance exponential growth of message traffic development of systems business processes to cope with standards latest versions all production problems can now been ‘seen’ by your clients
efixing the future with v 4. 4 fund manager hedge fund private bank primary market transactions (q 1 2005) secondary market transactions indication of interest news quote mass quote retail bank trading session status single trades list bids list trades allocations settlement instructions fx stock exch ecn security definition derivatives broker dealer market data update equities family office market data request fixed income Impact Cost Model
edma & algo trading – who has control? partial disintermediation of traditional sell side trading capabilities from the order management cycle is a natural development resulting from the creation of automated central limit order books within commercially focused stock exchanges and ecn’s the provision of straight through access moves the decision point closer to the source of order origination if required @ the buy side 1) sell side experience ‘buy side’ ma on d n poe dm a algo point of execution dm red so on sp algo 2) sell side technology algo a 3) buy side technology only poe point of execution
eoutcome of change operational costs continue to increase because of the technology ‘arms race’ which has been started the buyside undertake fundamental reassessment of trading strategy as they seek to find an effective balance between technology cost and market risk resulting in very different order execution models (active disintermediator > passive liquidity manager) being adopted liquidity starts to consolidate around globalised institutions as they leverage their distribution & technology infrastructure and look to extract greater value from natural internal order flows, their capital base and more efficient processing throughout the trade lifecycle external regulatory and internal audit requirements continue to force greater transparency (automation) for the entire trade cycle
esummary no matter how advanced trading technology becomes, people are still required to manage the selection of the input, the context of the output and explain the commercial advantages to clients through a strong relationship, such intellectual capital will always have a premium attached, fix is after all only a standardised delivery mechanism
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