Exclusive Online Only ContentFIX Study Asserts Protocol Cuts Costs, Raises Efficiency
January 15, 2010
Broker-dealers using the FIX message format cut costs in linking to trading venues and achieve higher operational efficiency, according to a study just released by FIX Protocol Limited (FPL), the trade group which created and promoted the standard.
By highlighting the benefits of using FIX, FPL hopes to promote its acceptance beyond the equities market. The other targets: fixed-income, foreign exchange and derivatives arenas.
The group in March will also release a version of the protocol called FIX Algorithmic Trading Definition Language (FIXatdl) to reduce the time—and coding work – required for broker-dealers to develop new algorithms. Launched in 1992 by Fidelity Investments and Salomon Brothers, FIX is now in its eighth incarnation.
The analysis marks the first time FPL has commissioned a report on the merits of using the standard. Oxera Consulting, the London-based research firm which conducted the study, is known for its surveys on messaging in post-trade securities processing work such as corporate actions and trade affirmations.
The study, titled "What Are the Benefits of the FIX Protocol?," does not calculate the savings or benchmark the operational efficiencies achieved.
“One key effect of the widespread adoption of FIX is a reduction in the connectivity costs during the adoption, use and maintenance of application software when establishing links between investment managers and brokerage firms and between brokerage firms and trading platforms,” the study asserts, however. “Through integrating internal processes and external operations, the adoption of FIX also increases efficiency internally, for example by reducing costs and operating risks.”
Reducing the costs of connectivity, in turn, allows fund managers to increase the number of links with domestic and foreign brokers and brokers to increase the number of direct links to trading platforms. Exchanges can also increase the number of firms that are connected directly, while new entrants – multilateral trading platforms, can more easily reach a relatively high level of trading members.
The need for broker-dealers to increase the number of connections to trading platforms has been prompted by the European Union’s adoption of the Markets in Financial Instruments Directive (MiFID) in late 2007 which created a surge in alternative trading platforms to exchanges. There are about twenty exchanges and at least five multilateral trading platforms which brokerages in the EU can chose from.
Among the other key merits for using FIX beyond the trading arena cited by the study are: the improved capacity of firms to generate reports on their trading activity; reduced costs for complying with best-execution requirements in the U.S. and Europe; and the increased efficiency of post-trade processing.
