FIX Beyond the protocol… Paul Foley Partner Manager

FIX
Beyond the protocol…
Paul Foley
Partner Manager
Financial Markets
Microsoft
Sept 17th 2004
Emergency Procedures
In the event an evacuation, there are two different alarms:
Alert signal

The alert signal is an ‘intermittent tone’ with voice instructions. This
is the standby to Evacuate. It does not mean evacuate the building.
Evacuation alarm

The evacuation alarm is a ‘continuous tone’ with voice instructions.
All personnel should leave the building immediately via the nearest
fire exit and congregate at the designated Fire Assembly Point as
directed by the fire marshalls.
Testing

There will be an alarm test today at 10am. No action needs to be
taken – this will only last for a few seconds.
Agenda

Welcome
Peter Randall FIX Protocol ltd


Kevin Lee SolutionForge


FPL update
The Third Way
Stuart Plane Citadel Associates

Utilizing FIX beyond the OMS
Coffee

John Wilson Man Financial


Kevin Houstoun FPL/Rapid Addition


SI Fresh
FIX repository and financial messaging infrastructure
Kevin Bourne HSBC

Fix’ing the future
Refreshments
FIX Protocol Limited
Announcing the latest FPL initiatives and how
they will affect all FIX users, Peter will bring
the audience up to date with the latest FPL
community initiatives and will debate the
increased importance of compliance.
FIX: the purpose
To improve the global trading process
by defining, managing, and promoting
an open protocol for real-time,
electronic communication between
industry participants, while
complementing industry standards.
FIX: the last 10 years
•
•
•
•
•
Salomon & Fidelity conversations
Competing models, open or closed?
Generic or Customised?
Broader industry background
Growth of quantitative management
style
• Increasing product sophistication
FIX the next 10 years
•
•
•
•
•
•
Message area ratio
Fixed Income certification
Algorithmic Trading
Foreign Exchange
Primary markets
Allocations & SSIs
…to improve the global trading process
•
•
•
•
•
•
•
nearly 60% of respondents reported that they were making use of FIX
within their organisation in some capacity
a further 27% reported that they are planning to implement FIX in
some form within the next 12 months
amount of order-flow sent using FIX continues to grow. 90% of
respondents that undertook equity business used FIX.
sizeable 21% of firms in the equity space indicated that all of their
equity activity was conducted over FIX
US buyside 77% are FIX users, US sellside 97% are FIX users
Nearly 50% of buyside firms expect more than half of their flow to go
via FIX in 2004/5
during the past 10 years volumes, values and complexity have
increased dramatically, in part this has been enabled by FIX
…an open protocol
•
•
•
•
•
Open in the sense that the specification is published on the website
and is available for free to developers
Open in the sense that industry participants are encouraged throughout the life cycle of a version to help develop, improve and contribute
to the the protocol and its acceptance
Open in the sense that the protocol is both platform and operating
system independent, neither is it tied to an individual market or a
specific set of business rules
Open in the sense that additions and extensions are constantly being
developed, worked on, tested and when ready are made available
within the aegis of FIX Protocol Limited
Open in the sense that the ultimate IP is both mutually controlled and
mutually owned
…real time electronic communication
between industry participants
•
•
•
•
•
Between 1990 and 2000 European trading volume increased at an
annual compound rate of 30%
At the same time electronic trading of shares including direct market
access have seen significant commission reductions
In the US since 2000, buyside trading has increased by 18% but now
nearly 40% of all US trades are done by non traditional managers and
their volumes have increased by a cagr of 80%+
The benefits of FIX are commonly cited to be a reduction in operational
errors, an encouragement of alternative trading venues, and more
active buyside order management participation
93% of buyside houses report that they are more likely to want to pass
an order to a FIX enabled house
…complementing industry standards
•
•
•
•
•
FIX is de facto the industry standard for IOI, pretrade, and trading
activity. It is being developed by its users into the post trade and
allocations space.
FIX is not just equities, it is also very active in the Fixed Income and
Derivatives space
FIX is close to operating a certification plan for certain FI applications
with important ramifications for equities & derivatives
FIX has a memorandum of understanding with SWIFT to move toward
‘convergence’ with the ISO 15022 standard and is a very active
participant of WG10
FIX sees interoperability as an immediate and attainable goal and is
working hard with related standards bodies to achieve this
Compliance
•
•
•
•
•
Basel II capital requirements
Algorithmic / Quanta Trading
Regulatory interest SEC / FSA
Demands for certification
Demands for standards
FIX your Flexible Friend
4000
3500
3000
2500
Messages
2000
Fields
Messages in Fields
1500
1000
500
0
4.0
4.1
4.2
FIX version
4.3
4.4
Join FPL!
www.fixprotocol.org
The Third Way
Kevin Lee
SolutionForge Limited
+44 1277 312304
[email protected]
Subject




FIX Landscape – past and present
Different perspectives – risks with current
approaches
Approaches to handling those risks
Lighter weight solutions
FIX Landscape



FIX now in its eleventh year
FIX 4.4 released in 2003
However…
FIX 4.0 connections still being deployed
 Surprising high number of institutions have yet to
deploy FIX (despite large OMS investment)

Why?




Disruption of ‘Big Bang’ OMS deployment
Lack of understanding of the benefits of
electronic trading
High costs (FIX engine, communications,
support)
Risk
Risks
Order Management
System
Embedded FIX Engine
Solution
Order
Management
System
Embedded
FIX Engine
Messaging
Infrastructure
Benefits

Independence from OMS vendor
Limitations with vendor-provided FIX engine
 Limitations with OMS FIX implementation
 Opportunity to separate out functions


Addition attractions for Sell-side
Maintain client relationships
 Contain costs
 e.g., Bloomberg (exchange code mapping)

Opportunities for Best of Breed
Order
Management
System
Embedded
FIX Engine
IOI Mining
Application
Messaging
Infrastructure
Opportunities for Best of Breed
Order
Management
System
Embedded
FIX Engine
IOI Mining
Application
?
Messaging
Infrastructure
Lighter Weight Solutions




Many institutions have existing order
management facilities
No desire to ‘big bang’ with large OMS vendor
– i.e., replace existing OMS investment
More recently, the FIX/Excel plug-in seen as a
panacea
But…
Lighter Weight Solutions



Excel is a personal, desktop productivity tool
Not designed as a multi-user, secure trading
environment
Therefore genuine danger of information (and
by implication, financial) loss
Existing Alternatives

Execution systems are available, but …
Traders often put off by complexity
 Lack of focus on the key workflows has lead to
application ‘bloat’
 Systems generally sit alongside but rarely integrate
with institutions’ existing technology

The Way Ahead…?

Solutions that provide
Commoditised independence
 Reduced Risk implementation
 Highly Intuitive user interface
 Flexibility
 Interoperability with standard IT assets
 Light weight – Zero touch deployment

C
C
citadel
associates
Utilising FIX beyond the OMS
Citadel Associates
Stuart Plane – Sales and Marketing Director
Introduction
•
Utilising FIXML 4.4 beyond the OMS
•
Setting the scene thus far
•
What changes in FIXML 4.4?
•
How do these changes effect systems other than the OMS?
•
Practical Example – Fixed Income unsolicited order
•
Advantages offered by FIXML 4.4
C
C
citadel
associates
Setting the scene
•
Traditionally only the OMS has been FIX enabled
•
Equity orders were only passed between Buy & Sell side OMS
systems
•
The passage of any “complex” information (program trades,
derivatives, etc.) required work-arounds
•
Organisations are heavily dependant on OMS and FIX engine
vendors for latest releases and new functionality as FIX progresses
•
The past year has seen several OMS players utilise Fix 4.2 for:
•
Fixed Income (including allocations)
•
Algorithmic Trading
•
FIXML 4.4 schema version released Jan 2004
C
C
citadel
associates
Setting the scene
IOI’s
Orders
Buy Side
OMS
Executions
Allocations
FX, Fixed Income & Algo Trading
C
C
citadel
associates
Sell Side
OMS
Major changes in FIXML 4.4
• Fundamental change - Component Blocks embedded in standard
messages
• Standardised format for additional information is now contained within FIX
messages such as:
•
•
•
•
•
OTC information
Commission information
Security information
Allocation information
SSI information
• Extremely comprehensive coverage in 4.4 opening up Fix to carry more
than just equity orders
Is the typical Buy side OMS designed to handle this information?
C
C
citadel
associates
How these changes effect systems
other than the OMS
• Back Office
• Clearing/STP environment
• Back Office accounting
• OTC & Derivatives
• Risk Management
• Modelling
• Asset Allocation
• Compliance
• Reference Data
• Data warehouses
• Middleware
• All systems holding reference data
C
C
citadel
associates
How these changes effect systems
other than the OMS
Risk
Modelling
OMS/TCA
Yield Curve Data
New Securities
Underlying Instrument Data
Allocations
Commissions
Standing Settlement Instructions
Back Office
C
C
Data Management
Integration & Workflow
Asset
Allocation
citadel
associates
Practical Example
• Unsolicited Fixed Income order used as an example
• Buy side places order with sell side over the phone
• Sell side confirms order verbally and sends executed order to buy side
via FIX
• What happens if the security that has been purchased does not
exist in the Buy Side organisations systems?
C
C
citadel
associates
Practical Example
Order
USD 10 Mil, BBB Rated,
Auto Sect, Dur 3.8 – 4.1
Execution
USD 10 Mil, Ford Motor
Credit 7.375% 28/10/09
FIX Executions
Buy Side
OMS
Insert Order into OMS
The security does not exist?
•Create the security in the OMS
•Create the security in the reference data repository
enabling other systems to utilise this new security info
C
C
citadel
associates
Sell Side
OMS
Getting the data into other systems
• With FIXML 4.4 this is easy!
• FIXML 4.4 New Order Message
<FIXML xmlns="http://www.fixprotocol.org/FIXML-4-4"
xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance"
xsi:schemaLocation="http://www.fixprotocol.org/FIXML-4-4 ../../schema/fixml-main-4-4.xsd"
v="4.4" r="20030618" s="20040109">
<Order ID="123456" Side="2" TxnTm="2001-09-11T09:30:47-05:00" Typ="2" Px="99.25">
<OrdQty Qty="10000000" />
<Hdr Snt="2001-09-11T09:30:47-05:00" PosDup="N" PosRsnd="N" SeqNum="521"
SID="AFUNDMGR" TID="ABROKER" />
<Instrmt Sym ="ISIN" ID ="US345397SM61" Src ="1" Prod ="9" SecTyp ="CB"
Issr ="FORD MOTOR CREDIT CO" MatDt ="20080104" Issued ="19981304"
Desc = "Ford Motor Credit 7.375% 28/10/09" />
</Order>
</FIXML>
C
C
citadel
associates
Instrument Component Block
Summary of FIXML 4.4
• Provides a standardised language to exchange all types of information
between Financial Services organisations
• Empowers people familiar with XML and web services to create and
extract value from FIXML
• Enables information embedded in FIXML messages to be utilised
throughout the organisation
• Facilitates the use of standard workflow, integration and data
management tools to handle FIXML
Make connectivity easier, cheaper and more reliable
C
C
citadel
associates
Coffee break
Reducing Exceptions
- Post trade &
SSIfresh
John Wilson
Man Financial
Post trade, pre settlement
 Post trade features dramatically improved in
Fix 4.4
 Studies highlighted savings of $100k pa
annum for firms simply from avoiding vendor
confirmation costs
 Continuous dialogue rather than broken
conversation
 Greater use of existing FIX infrastructure and
relatively easy integration into legacy systems
Settlements
 Erroneous settlement reference data is a notable cause
of trade fails (37% per Capco 2002 study)
 Flawed market infrastructure for SSI data exists



Buy & sell sides hold counterparty SSI data to overcome legacy
“wisdom” in trade messaging
3rd party repositories remain costly to use and are poorly
maintained, with high errors rates reported
Custodians have historically not offered to maintain 3rd party
repositories or distribute data electronically, despite holding the
“accurate” records
 14 firms met to consider problems of SI reference data in
September 2003, prompted by CityIQ paper
 ISITC adopted group in October 2003
SSIfresh members
Buy Side
Sell Side
Custodian
HSBCAM
HSBC
HSBC GIS
Insight Investment
DRKW
Northern Trust
Morley
SocGen
Citibank
Gartmore
UBS
BBH
Baring Asset Mgt
Citibank
Man Financial
Group assisted by CityIQ, Microsoft and Tradeweb
Working party brief
 Define model for maintaining and supplying
settlement information as part of the post
trade process
 Recommend a model to cover all instruments
 Use only existing message/data standards
 Employ commonly available, low cost
technologies offering open architecture
Initiative status
 Working Party evaluated a number of models
including “STP Lite” proposed by FIX Protocol
 Preferred business model determined and
outlined in a White Paper in Feb 2004
 Proto-type process environment developed
using FIX data elements/messages with web
services, in a matter of days


BizTalk used to operate web services
SQL Server to replicate custodian and buy side
databases
SSI fresh process
 Both parties to a trade supply THEIR OWN settlement
details on EVERY TRADE allocation
 Buy side attempts to dynamically retrieve SI data from
custodians (web service) using stock identifier, custody
account ref and PSET
 If service unavailable, buy side sources SI data from
their “locally” hosted database using parameters such as
asset type, instrument, PSET, Currency etc
 Maintenance of local buy side database independent of
trade process


Updated automatically via “SI data service” from custodians via
web service
Updated manually in the case of “dinosaur” custodians
Proposed SI
infrastructure
SI data per allocation
Buy
Side
Sell
Side
Dynamic enquiries
Institutional
Delivery
Instructions
Web
service
Web service SI data updates
Web
service
Sub
Custodian
details
Custodian
Benefits of SSIfresh
 Improved quality of SI data through use made of





most accurate SI data records
Use of costly 3rd party services can be avoided
Eliminates need to maintain counterparty SI data
within buy-side
Improves accountability for data quality
Relatively cheap and quick to implement
Model specifically allows for a gradual migration Buy side sourcing of data is a matter to be
determined in conjunction with custodians
Take-up
 Early days but considerable attention being
given to the subject
 Buy side firms being encouraged to


Adopt unilaterally adopt White Paper
recommendations
Engage their custodians to support White Paper
model
 ISITC working group fostering adoption
amongst custodians and resolving teething
issues
FIX Repository based Products
Infrastructure for
Financial Messaging
Presenter Kevin Houstoun
Director
[email protected]
Introduction

Two themes



FIX Repository
Rapid Addition
Several Hats





Primary author of the FIX repository
Co Chairman of FIX Global Technical Committee
Co-Leader FIXML Schema WG
Member of European FIX Governance Board
Software Architect for Rapid Addition
What is the repository?
FIX for computers






FIX – historically a Word document
Easy for people; difficult for computer
Generate tools, code
Few errors
More consistent approach
FIX can support multiple formats with one piece of
work
What is the repository?








Information extracted from the FIX specification
In a different more computer usable format
Currently a series of XML documents and schemas
Can be loaded into a database
Specific SQL can reproduce the specification from
the database
To be used to generate future releases of FIX
Has been made publicly available to FIX membership
Will be made available as the core data for future
releases of FIX
Construction

There are a number of parts to the repository






Fields
Enumerations
Components
Messages – special type of component
Message Contents
For each part of the repository there are 4 files




*.xml – The data itself
*.xsd – The schema for the data
*.xsl – A transform to display the data in IE
*.html – A page to invoke the transform and display the data
in IE
The FIX Specification Data Dictionary


Fields & Enumerations – essentially the data
dictionary from the FIX Specification - Volume 6
Fields xml file contains

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


Enumerations xml file contains




Tag,
FieldName,
Description,
XML Name
Tag,
Value,
Description
One to many relationship between Tag in Fields and
Tag in Enumerations
Components (including messages)

Components and Messages contains





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


Object ID,
Name,
Type,
Category,
Abbreviation,
Description
Indentation (only used for certain component types)
Order (only used for certain component types)
Messages are a special case of components that
include specific additional information. Messages are
the top level application object in the FIX model.
Message Content xml File

Message Content contains









Object ID,
Tag Text,
Tag,
Description,
Required,
Position,
Indent,
Component Object ID
Basically the result of selecting all records in from
Message Content with an Object ID corresponding to
a FIX message is data equivalent to the message
table for that message in volumes 1, 3 – 5.
Thus
becomes
Why did we build the repository?





I’m lazy and I make mistakes.
BUT lazyness can be a virtue.
Asked by Global Technical Committee to help
prepare the DTD to match the FIX.4.4 release.
Needed to allow me to generate the DTD rather than
create it by hand.
This allowed us to apply one design to the whole of
the FIX model.
How have we used the repository?




Generated Volume 6 – The FIX data dictionary
Can and will generate all message tables for future
releases of FIX
Supports addition of messages and fields for future
versions of FIX
Generate FIXimate, FIX.4.4 DTD, FIX.4.4 Schema.





www.fixprotocol.org Tech / Spec – see links to Repository
www.fixprotocol.org Tech / Spec – see links to FIXML
www.fixprotocol.org Tech / Spec – see links to FIXimate
Cross check FIX specification, are names in message
tables same as names in data dictionary.
Pre compile all valid message possibilities and check
against FIX design rules.
Rapid Addition Limited
http://www.rapidaddition.com
Rapid Addition Limited


Develops toolsets and solutions that are “enabled”
by the existence of the FIX repository.
Management team




Kevin Houstoun
Simon Tarling
Clive Browning
Apply repository and related techniques to
incorporate others standards



SWIFT,
FpML,
XBRL
First Product – Codename “ShortCut”

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






Layer of FIX related messaging enhancements that integrates
with BizTalk 2004.
FIX message handling for equities, cash and program trading
from idea to settlement.
Special FIXML schema that supports BizTalk and FIXML
Easily customised to support end user business process
Traditional FIX to next generation FIXML converter.
… and back
Tools to customise and support customisation based on FIX, to
ensure an exact fit to your business requirements.
Designed to work with technology partners ( Example - Citadel)
Flexible Frame work for building OMS, PMS, Ticketing and
Settlement Systems, and for linking them to each other.
Why the MSFT BizTalk 2004 platform



Leverage existing skills
Harness the .NET
framework
Build with standards
BizTalk Server 2004: Rapid Addition
Orchestration
RA Short Cut Orchestrations
Activation and Instance Management
Rapid Addition
BizTalk friendly Schema
Correlation and Content-Based Routing
Universal MessageBox
Custom Tag Schemas
Message Pipeline
Decode
Encode
Decrypt
Encrypt
Authenticate
Sign
Parse
Serialize
Extract
Properties
MSMQ
Adapters
…
FIX to XML
Encode
XML to FIX
Decode
FIX Session
Adaptor
Partner FIX
Engines
Adapters
HTTP
Web
Services
MQSeries
Orchestration
•Receive New Order Single
•Decide Accept or Reject
•If Accept Send to
Exchange
•If Accept Report
Acceptance
•If Rejected Report Reject
Add a decision
Work or Route?
•Here
•Rule based
•NewOrder.OrderQty.Qty >
10000
Drag and drop!
•The route to exchange
functionality
•Drag to the small order
size branch of the decision
Call another orchestration
•Orchestration for working
the order.
Case Study - Typical Solution




Pick allocation out of OMS system
Route to broker
Handle exceptions to the normal flow
Re-integrate workflow with manually processed
allocations in OMS
Partner – Citadel – Retrieve the allocation
Rapid Addition – Send via FIX
Rapid Addition - Handle the exception
Summary
Repository
 Improve FIX standard management process
 Improve tools for FIX users
 Improved products from FIX vendors
Rapid Addition
 Native workflow modelling
 Repository Native
 Allocations
 Order Workflow
 Links to other messaging protocols (SWIFT)
 Low TCO
Rapid Addition Limited
http://www.rapidaddition.com
‘Fix’ing the Future?
The Impact of an Electronic
Trading Standard
& the Creation of Virtual Markets
Presented by Kevin Bourne
Managing Director Equity Trading
HSBC Investment Bank
forces of change
performance
consolidation
trustees & consultants
long / hedge alpha creation
operating costs
benchmarking
transparency
liquidity
risk providers
transaction costs
product models
performance models
price discovery
market infrastructures
technology
regulation
common product standards
global intra day connections
low cost of entry for systems
low cost of global networks ipv6
cp176 unbundling
cp154 best execution
isd
basel 2
the effect of automation
200
180
160
140
120
average trade £m
100
daily bargains m
80
60
40
20
0
1997
1998
1999
2000
source: london stock exchange
2001
2002
2003
2006?
2009?
‘off exchange’ blocks
autex average daily ioi and advertised trade volume
300,000
250,000
200,000
General IOIs
150,000
Detailed IOIs
Advertised Trades
100,000
50,000
0
1994
* Source Thomson Autex
1999
2004
daily averages
1994
1999
general 138,685 156,433
detailed
20,646 19,933
advert
32,915 107,334
total
192,246 283,700
2004
222,662
214,263
256,168
693,093
‘fix’ing the future
the financial information exchange protocol (fix) was established in 1993/4
fix is a common messaging language which allows real time and secure electronic
communication between financial institutions
fix is an open protocol which is platform and vendor neutral
fix does not mandate specific communications carriers or security protocols
fix connects all counterparts and infrastructure providers for all products & asset classes, pre
trade / trade / post trade globally in real time
universal standardized infrastructure + commoditization = industrial revolution
standard
free
60% done
universal
the industry opened a pandora’s box
new systems were required to manage fix in all its detail
and complexity
old systems needed to be modernised to cope with fix’s
structure and order
fix is still a developing protocol with various iterations
having been published therefore upgrades are needed
global low cost ip reduced communications costs but
fragmented communications provision
the intellectual input into the protocol was and remains very
significant and fix moved faster than many senior
managements teams understanding of the impact
trading floor users however started to understand how fix
could help them build and deploy new business processes
and gain market advantage

fix connectivity, key issues
pre production
ip connection method hub & spoke, peer to peer, vpn, which network do your
clients use
economics overpriced circuits based on bandwidth usage
testing implementations for variances
production
resilience total mission criticality for all systems
performance exponential growth of message traffic
development of systems business processes to cope with standards latest versions
all production problems can now been ‘seen’ by your clients
fixing the future with v4.4
fund
manager
hedge
fund
private
bank
retail
bank
quote
mass quote
market data request
market data update
security definition
trading session status
single trades
list bids
list trades
allocations
settlement instructions
fx
stock exch
ecn
news
derivatives
broker
dealer
indication of interest
equities
family
office
secondary market transactions
fixed income
Impact Cost Model
primary market transactions (q1 2005)
dma & algo trading – who has control?
partial disintermediation of traditional sell side trading capabilities from the order management cycle is a
natural development resulting from the creation of automated central limit order books within commercially
focused stock exchanges and ecn’s
the provision of straight through access moves the decision point closer to the source of order origination if
required @ the buy side
1) sell side
experience
poe
2) sell side
technology
algo
point of execution
algo
algo
3) buy side
technology
only
poe
point of execution
outcome of change
operational costs continue to increase because of the technology ‘arms
race’ which has been started
the buyside undertake fundamental reassessment of trading strategy as
they seek to find an effective balance between technology cost and market
risk resulting in very different order execution models (active disintermediator >
passive liquidity manager) being adopted
liquidity starts to consolidate around globalised institutions as they leverage
their distribution & technology infrastructure and look to extract greater
value from natural internal order flows, their capital base and more efficient
processing throughout the trade lifecycle
external regulatory and internal audit requirements continue to force
greater transparency (automation) for the entire trade cycle
summary
no matter how advanced trading technology becomes, people are still
required to manage the selection of the input, the context of the output
and explain the commercial advantages to clients through a strong
relationship, such intellectual capital will always have a premium
attached, fix is after all only a standardised delivery mechanism