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.
Over recent months, testing of the new standard has been conducted in three independent real-world environments by separate FPL member firms. This initial round of testing revealed the potential for additional functionality to be added to further support business needs. Additional testing is now underway to review these enhancements to ensure that the standard meets market requirements as effectively as possible when it is released in Quarter 4 of this year.
High Frequency Trading
FPL has identified that many firms currently use costly proprietary protocols to achieve the highest levels of performance. To help the industry reduce cost, FPL has started work to develop a new standard for electronic trading, which can be optimised to support very high frequency trading. To achieve this goal, a High Performance Interfaces Working Group has been formed. Following the production of project scope documentation, this group is currently focused on defining the project’s detailed requirements before starting to create the specification and proceed into independent testing phases, which are expected to commence in coming months. The group is working to make the standard available for market adoption in early 2012.
Additional Support for Exchanges and the Fixed Income and Derivative Markets
Over the past 6 months, the FPL Global Technical Committee (GTC) has also released new functionality to enhance the core FIX specification that is now available for market adoption. By working closely with exchanges in Asia and the U.S., further support has been added to enable equity and derivative exchanges to implement FIX in as standard a manner as possible.
From a fixed income perspective, new functionality has also been added to support the proposed requirements of the new U.S. three-way trade confirmation and settlement time processes as recommended by the Federal Reserve Bank of New York (FRBNY) Tri-Party Repo Reform Task Force. This group was created to identify and address the weaknesses in the U.S. tri repo market that became evident during the recent financial crisis.
Over coming months, the GTC is expected to release further FIX functionality which will include support for the futures markets to enable firms executing trades in line with give-up agreements to communicate the end-to-end execution source information, from execution through to clearing and settlement via FIX. Additionally, further functionally for exchanges is also due for release shortly.
New and Emerging Markets
In 2011, FPL has continued to work closely with market participants in multiple new and emerging markets globally to support growing interest in using the FIX Protocol to facilitate evolving electronic trading requirements. A primary example of this is the FPL India Working Group that was formed earlier this year and held its inaugural meeting in May. This group seeks to provide a forum to support the growth of electronic trading practices and FIX adoption in the region and the initial key areas of focus include addressing local implementation issues, understanding the challenges and opportunities prevalent within India and identifying the educational needs of the market, so FPL can gain a stronger comprehension about how it can more effectively support the local market. Additionally, in late 2010 FPL also launched a Middle East Working Group to help the organisation gain a stronger understanding of the needs of this region and plans to continue work with this group over upcoming months.
Promotion of the Standard
Promoting increased use and adoption of the FIX Protocol is key to the standard’s future success. To support this effort, in March FPL released FIXwiki, a FIX-specific wiki website that provides a comprehensive and authoritative view of the FIX specification. This interactive and educational web tool enables visitors to benefit from the knowledge that has been kindly contributed by other users, so they can enhance their usage and understanding of the protocol. FPL Member firm representatives are encouraged to actively contribute additional information to FIXwiki by providing comments and sharing knowledge and insight that will be used to support the future development of the protocol. FIXwiki can also be viewed by the broader FIX user community, providing a valuable reference tool for all market participants.
Central to FPL’s strategy of promoting increased adoption of the standard, is the various events it organises in markets across the globe. FPL’s 2011 events commenced in January with the Dubai based Middle East Briefing, which was the first event ever held by FPL in the region and attracted a strong local audience keen to learn more about the benefits of FIX and how advancements in electronic trading are expected to impact market practices.
This was then followed by the EMEA Trading Conference in March, which attracting more than 900 delegates, proved to be the largest event ever organised by FPL and additional events were also held in Mumbai, Frankfurt, Hong Kong, New York, Boston, Tokyo, Sao Paulo and Toronto. In the latter half of the year, we look forward to events scheduled to take place in Mexico City, Singapore, Sydney, London, New York, Moscow, Stockholm, Tokyo and Chicago. If you would like to learn more about the events FPL will be hosting in 2011 please visit www.fixprotocol.org/events.
Within the first half of this year, FPL also participated in a carefully selected range of externally organised events, to benefit from the opportunity to explain the advantages of using standards to key industry segments. This included exhibiting at the 36th annual IOSCO conference, held in Cape Town. IOSCO is the international standard’s setter for global securities regulation and its conference attracts representatives from regulatory organisations around the world. By participating in this event, FPL was able to further communicate how regulators can utilise the protocol in the development of future regulation, allowing firms to leverage their existing investment across additional business areas, generating significant cost and resource savings.
These are just some of the many initiatives currently underway by FPL, all ultimately focused on supporting the evolving business needs of the trading community to enable firms to optimise efficiencies and reduce cost. Participation in these initiatives is open to FPL Member firms and we encourage their involvement, for more information please contact the FPL Program Office by email at FPL@fixprotocol.org. If your firm is not a member of FPL, but would be interested in finding out more about how to join please contact Bernie Simon, FPL Membership Relations Manager by email at Bernie.Simon@fixprotocol.org.