Fixed Income Runs on FIX

Lisa Taikitsadaporn, of Brook Path Partners and Chair of the FPL Global Fixed Income Technical Subcommittee and Sassan Danesh of Etrading Software chart the evolution of the FPL-FICWG Initiative.

Background and Objectives
In the nearly 20 years of the FIX Protocol standard, the protocol has been synonymous with equities electronic trading and has become the de facto standard used by equities trading systems globally. FIX has evolved over those years to continually support the needs of the global user community across different user groups and has expanded into additional asset classes. In 2001, FIX Protocol Ltd (FPL) signed a memorandum of understanding with the Bond Market Association (which merged with the Securities Industry Association to form SIFMA) to collaborate on enhancing the FIX Protocol to support the trading life cycle of cash fixed income products.

This initiative resulted in FIX Protocol enhancements in version 4.4 of FIX to support additional fixed income asset types, as well as supporting workflows such as quote/negotiation, post-trade allocation and confirmation/affirmation workflows. The fixed income asset types covered in the 2003 release of FIX 4.4 included: US Treasuries, Agencies, Municipals, TBA Mortgages, Corporates, Commercial Paper, Repurchase Agreements and Security Lending transactions as well as their European counterparts.

The release of version 4.4 increased the penetration of FIX into the fixed income space, primarily for buyside connectivity with electronic platforms or directly between buy-side customers and the brokerdealers. However, many of the Electronic Communication Networks (ECNs) active in the fixed income markets did not implement these specifications for connectivity by the broker-dealer community, who provide the liquidity to the markets.

In June 2011, the global investment banking community, with the support of Etrading Software and Expand Research, launched the Fixed Income Connectivity Working Group (FICWG) initiative, aiming to standardize connectivity between major sellside banks and execution venues for fixed income trading through the use of the FIX Protocol and other open industry standards. This initiative was supported by FIX Protocol Ltd. in the same month, and the result was the creation of a working group under the FPL Global Fixed Income Technical Subcommittee to produce the required recommendations to achieve the standardised connectivity.

The initial focus for FICWG in 2011 was standardisation of OTC swaps trading, which was under increasing regulatory scrutiny following the collapse of Lehman Brothers in 2008, and the resulting realisation that regulators required better and more timely information on OTC derivatives trading in order to be able to monitor systemic risk across the market. This realisation led to the mandating of the trading of standardised OTC swaps contracts onto newly established and regulated execution venues known as Swap Execution Facilities (SEFs) in the United States and Organised Trading Facilities (OTFs) in Europe.