Buy Side Seeks Execution Transparency

Terry Flanagan

The buy side is seeking greater transparency over how and where their orders are executed. As algorithmic trading strategies are increasingly used by brokers in the quest for best execution, buy-side firms want to understand how their liquidity interacts in the markets.

Buy-side representatives of FIX Trading Community have developed guidelines for execution venue reporting, through which they expect to increase awareness of where their orders are being filled as the market continues to fragment into dozens of dark and lit trading venues, and enable asset managers to determine whether or not the routing decisions of their brokers are made to the benefit of the broker or the client.

“The key issues are transparency and consistency,” said one of the buy-side panelists at a FIX Trading Community briefing on April 15. “We’re all routing to basically the same places, but we had this wild inconsistency as to what we were getting back on the execution.”

A focus of the buy-side effort has been to define the usage expectations around the FIX fields that describe the final destination point of an execution (Tag 30), the capacity of the broker for that execution (Tag 29) and the nature of liquidity (added or taken) for that trade (Tag 851).

“That was a pretty strong momentum shift, because now, if you set up a new FIX connection anywhere, you get 29, 30, and 851 out of box, which is a real testament to our group and the power of the FIX Trading community.”

Another one of the panelists in the FIX Trading Community’s execution venue subgroup, said that in the U.S., where the group has been concentrating its efforts, “we are in the low 90’s percentile on getting venue information back. Globally, were seeing in the 70 to 80 percentile in venue information. Maker-taker’s still a work in progress.”

The subgroup met with U.S. exchanges late last year about providing maker-taker data for the appropriate fields in tag 851. “We’re going to publish links to those spreadsheets to make it easier for the buy-side to translate those and see if we get a boost in maker-taker information.”

The panelist added that the subgroup will shortly be issuing a revision to the execution venue analysis guidelines, which were issued in 2011 and revised in 2012.

The revised guidelines will also focus on time-stamps, which are crucial for determining latency and other order routing characteristics. “There’s inconsistency in the time-stamps that we get back.” “Sometimes there are time-stamps on the venue itself, which is what we want. Other times it might be a time stamp coming through a gateway, like a FIX engine.”

Another objective is to go beyond information on where trades are executed to find out where trades were sent and not executed. The focus of this effort is or an indication of the market where an order was routed. The buy-side wants to have Tag 30, which provides information on the market of execution for last fill, expanded to include all venues to which orders are routed before reaching the execution venue.

“Right now, in you’re told where a fill took place, but you can’t tell where you were represented before that fill took place or where it was routed,” adds another member of the FIX Trading Community. “People are interested in having their execution providers provide information on where they actually routed the order before the execution, which gives an opportunity to do a deeper level of analysis.”

Featured image by Sergey Nivens/Dollar Photo Club

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