A working group of sell-side banks has been established to engage with trading venues and independent software vendors to promote the global use of the FIX messaging protocol across all fixed income products.
“There will be an explosion of electronic trading venues for fixed income in the derivatives space,” said Sassan Danesh, managing partner at Etrading Software, a trading technology supplier. “To make connectivity to all of these venues cheaper for the big dealer banks, FIX standards will be developed. Short term this will only affect the derivatives market, but long-term this will move to the cash market.”
Initially the group will target brokers' adoption of FIX before moving on to work with asset managers. Although FIX is commonly used by buy-side firms to connect to bond trading venues, sell-side firms typically use proprietary application programming interfaces (APIs), to connect to venues or counterparties. This model is only cost effective for maintaining a relatively small number of connections, as APIs are expensive to develop and support.
The Dodd-Frank Act in the US is likely to make the current model unsustainable, as it forces credit and interest rate derivatives trading onto electronic platforms.
The working group includes: BofA Merrill Lynch; Barclays Capital; Credit Suisse; Deutsche Bank; Goldman Sachs; J.P. Morgan Chase; Morgan Stanley; Royal Bank of Scotland; and Société Générale and they are supported by Expand Research and Etrading Software.
Fixed income workflows can be complex, says Danesh, and so the group plans to develop best practice guidelines that are officially endorsed by standards bodies FIX Protocol Limited and the Financial products Markup Language group, which will also deliver efficiency benefits to the brokers.
A majority of the working group members are also sponsoring the development of an enhanced FIX specification and domain model that is intended to form the basis of an updated open industry standard for fixed income.
Some fixed income functionality was incorporated in FIX 4.2, 4.4 and 5.0 but Danesh says that this was primarily developed between the buy-side and trading venues and even then it was not created in a uniform manner.
“We are going to reach out to the buy-side in a couple of months because even where FIX is established in the fixed income markets there are custom tags and messages,” he says. “It comes back to this issue that there are no best practice guidelines.”
“The FIX protocol is widely adopted and successful in other asset classes. The timing is right for the fixed income community to look at possible synergies and take the lead to adopt such open protocols”, said Stephane Malrait, global head of eCommerce fixed income and currencies at Société Générale Corporate & Investment Banking. “The impact of new regulations will be an increasing number of trading venues that require to quickly and cost efficiently integrate with all market participants.”