OTC Clearing ‘FIX’ed Up!

Reference data has become another important area with the advent of OTC clearing. Service providers must have a robust model for providing product reference and party reference data. Product reference data represents that set of instruments which are acceptable for submission and can be generically consumed by all market participants. Party reference data is generally unique per market participant and represents the set DCMs and accounts for which each participant is given permission to trade. Many standardized OTC instruments can be neatly defined using FIX. The Security Definition message allows product definitions to be concisely communicated using elements that are common across the FIX model, presenting opportunities for re-use and reduced development effort. The Party Detail List Report message allows a large array of parties to be fully elaborated as well as the relationships that exist between them. Reference information can be delivered either statically in file form or dynamically as real time messages. CME uses FIX to define a broad set of OTC instruments including CDS, FX forward and swaps, commodity forwards, and Energy swaps. CME also uses FIX to report the accounts and the DCMs that can be traded by a given party.

Conclusion

As the OTC world continues to change and regulators develop new requirements for trading, clearing and reporting of OTC products, FIX is emerging as a viable interface. We are starting to see a convergence of two worlds that were formerly separate, as the behavior of OTC markets start to come into alignment with exchange-listed and cleared markets. This provides an opportunity for FIX users to apply a common model to new types of products. Granted, there are areas where FIX will need to be extended and enriched in order to provide the necessary support for OTC users. However, FIX offers a fundamentally sound framework and has already taken strides toward becoming a useful solution in the OTC space.