FPL News June 2011

Helping the Industry To Trade More Effectively in 2011 and Beyond

What a year it has been so far! We may only be 6 months into 2011, but FPL has achieved a significant amount already. With new industry initiatives being implemented and many additional projects well underway, the organisation’s success, as witnessed by industry participants in multiple markets globally, is not showing any signs of slowing down.

The number of firms joining FPL continues to rise - we started the year with just over 250 members and this number recently increased just over 10% to more than 275. This growth is great for the organisation and FPL’s work is shaping the future of our markets. New members provide fresh perspectives and an expanse of knowledge and expertise. The FPL leadership works hard to meet and exceed the expectations of its membership and this article will highlight work that has been conducted since January to support this effort and the new initiatives currently being implemented to continue this in the coming 6 months:

Understanding Buy-Side Needs

As the financial markets continue to evolve, the requirements of the buy-side trader are changing. To enable FPL to develop a stronger understanding of the needs of this industry sector, in 2010 buy-side focused working groups were created in both the Americas and European regions, complementing the existing group in Asia Pacific. In February 2011, in an effort to achieve a more consistent response from the broker-dealer community, regarding broker reporting of the execution venue on each fill, FPL published a best practices document to help resolve these challenges. To view this document, please visit www.fixprotocol.org. These groups will continue to provide support to this industry sector in the coming 6 months.

From a  European perspective, in spring we were also pleased to welcome the UK based Investment Management Association (IMA) to the FPL membership. We look forward to the association’s participation in the many active FPL committees and working groups addressing real business issues impacting the buyside community, ensuring that the needs and views of its membership are effectively represented and addressed.

Raising Awareness of Risk Management

In late 2010, FPL launched a Risk Management Committee to raise awareness regarding the implications of electronic trading on risk management and to develop standardised best practices for the industry. In January, this group released an initial set of guidelines which recommend risk management best practices in electronic trading for institutional market participants.

The objective of the guidelines is to provide information around risk management and encourage firms to incorporate best practices in support of their electronic trading platforms. In today’s volatile marketplace, the automation of complex electronic trading strategies increasingly demands a rational set of pre-trade, intra-day and pattern risk controls to protect the interests of the buy-side client, the sell-side broker and the integrity of the market. The objective of applying electronic order risk controls is to prevent situations where a client, the broker and/or the market can be adversely impacted by flawed electronic orders. To view the guidelines please visit www.fixprotocol.org.

From a European perspective, in April the EMEA Business Practices Subcommittee commenced an initiative to develop a better understanding of the risk management issues raised by regulatorydevelopments that will impact the region, to ensure that localised issues are being effectively addressed. We hope to hear more about how this work progresses over coming months.

Meeting Business Challenges Inter-Party Latency

Addressing the business challenges impacting member firms throughthe development of standards is central to the organisation’s goals. A primary example of how this is being achieved is the work being conducted by the FIX Inter-party Latency (FIXIPL) Working Group. Currently, many firms make various claims regarding latency, but there is a lack of standards or consistency behind what they are measuring. This group is developing a new standard that will provide a bench-mark, so that the latency of a trade as it moves  through different systems at exchanges, trading venues and investment banks can be compared on an equal basis.