On the Workbench: Further Developing FIX for Equities Allocations

There is also the reduction in complexity from using FIX all the way because transactions, allocations and confirmations can be linked and traced which will result in a reduction in manual intervention to resolve issues. Finally, a common straight-through protocol would also reduce the implementation and support costs of needing different methods of allocation and/or clearing and settlement in different regions of the world.

How are allocations being addressed across other asset classes, e.g. futures, derivatives, fx?

Futures: Version 4.4 of the FIX Protocol, as with all versions of the protocol, was developed in concert with market participants including multiple major broker/dealers and many buy-side firms. It has proven to be extremely successful in reducing post-trade processing time and issues. The ‘rules-of-engagement’ specification is available on the FPL website (www.fixprotocol.org), within the FPL Americas Buy-Side Working Group section and includes futures and options-on-futures as well as single and multi-leg orders.

There will be considerable benefit from using this, in terms of reduced costs and time, to any buy-side or sell-side planning to implement futures trading via FIX. FX: Allocations via FIX for FX is in its early stages. If done via FIX, it most frequently employs pre-trade allocations which is somewhat limiting. The banks and portal vendors are just beginning to, or are in the process of, offering post-trade allocations via FIX. There is no real industry standard at this point.

Chris Walsh, NYSE

Who will benefit most from the implementation of FIX allocations?

FIX allocations provide the potential for significant benefits to both buy and sell-side firms – but the ‘hows’ (‘how soon?’, ‘how much?’ and ‘how can I know for sure?’) differ dramatically across these segments. Buy-side firms have the most immediate opportunity for FIX allocations. This is because most of their brokers support them in some form today and, as a whole, brokers have been responsive when clients want to use them. Because of this, buy-sides can integrate allocations into their FIX-based order process – providing an end-to-end trading solution that spans all brokers, asset classes and regions. By doing this, they can reduce costs and risks by better integrating their front and middle offices and gaining the flexibility they need to automate even the more challenging asset classes, such as futures, options and FX.

FIX allocations provide the most significant potential for cost and risk reduction to sell-side firms, who carry the largest share of post-trade costs and risks. However, until allocations – like orders – are widely adopted in a standard way across their clients, their benefits are diluted by the inefficiency of maintaining a fragmented set of post-trade processes. Because they are dependent on adoption and standardization across their clients, these benefits are longer term and totally dependent on their client’s commitment level to FIX.

How can greater uniformity of allocations messaging be encouraged and how will that improve straight through processing?

Encouraging uniformity of FIX allocations starts with the buy-side. They need to  prioritize it to the point where they actively participate in standards definition and then push their vendors, their trading partners and, often, their own internal functions to implement and comply. The FPL Americas Buy-Side Working Group is off to a great start driving the community in this direction. Achieving uniformity requires establishing an equally strong, uncompromising commitment from all segments of the market, including vendors, that needs to be sustained for multiple years.