Devising a Smarter Approach to Client On-boarding and Certification


By Candyce Edelen, CEO of PropelGrowth

The timeless challenge for new trading venues is to attract clients to connect before they have substantial liquidity. IEX Trading was confronted with this issue as it launched its new trading platform in October of 2013.

IEX’s business model is unique. A market designed to provide investors with a higher quality trading experience, IEX is a registered alternative trading system (ATS) funded entirely by a consortium of buy-sides including mutual funds, hedge funds, family offices and individuals. Brokers can subscribe to the platform on behalf of their clients, but IEX has no broker owners. According to IEX, this model creates a truly broker-neutral marketplace. The firm is focusing its efforts on attracting order flow from natural investors and educating broker clients how to optimize their algorithmic strategies to generate higher quality results on its ATS.

With vocal support from the buy side, IEX sought to find innovative ways to lower barriers for sell side participation. As part of this goal, the firm wanted to design a seamless user experience that makes it easy for customers to connect and use the venue. But a major hurdle to achieving this goal is that the traditional method used for client on-boarding and certification testing is manual, and therefore highly tedious and time-consuming for both exchanges and their clients.

Creating a Seamless Customer Experience

While IEX’s primary goal was to create a frictionless customer environment, they also needed to ensure that their internal processes remained as efficient and cost-effective as possible. Management recognized that automating the client on-boarding and certification process could help with both of these initiatives. Introducing automation can help exchanges get clients on-boarded and certified faster, ultimately improving their user experience and speeding up the firm’s time to revenue.

“We wanted to dramatically simplify the processes of developing interfaces and certifying new market participants,” said Billy Zhao, Market Access, IEX Group, Inc. “By simplifying, we could overcome objections to connecting and make it easier for sell-sides to try out our new platform.”

“Our technology team is very process-oriented. We look for ways to handle things deterministically,” explained Zhao. IEX looked at several vendors to find a platform to support this objective. Following a thorough evaluation, they selected Lasalletech’s FIX Conductor to help automate client on-boarding and certification.

Speeding Up the Client’s Development Cycle

Providing an automated QA interface helps simplify the work IEX customers need to do in developing their interface to the trading platform. According to Zhao, “Using FIX Conductor, we can give clients access to our QA system immediately after we provide the FIX specifications. This allows them to immediately assign development resources and start coding and testing. The QA system runs the same exact tests as our certification system. This way, our clients can develop their interface and test as needed against our system, sending in orders and getting instant feedback. This dramatically speeds up the client’s process of developing and testing the interface.”

But clients aren’t left alone to handle the testing process. Zhao pointed out, “It’s self-service, so they don’t have to work around our schedules. If they run into issues, they can still pick up the phone and talk to us. We can look into the order book and tell them what’s wrong.”

This process is particularly helpful for off-shore development resources. According to Zhao, “Some of our counterparties have QA and development resources in India. This has been a great help, because rather than having to wait to schedule a time to work with us, they have 24 x 7 access to the IEX trading environment.”

The system allows counterparties to identify problems and solve them at the client’s convenience. “When you test is when you surface the problem,” said Zhao. Clients can surface and resolve problems, and once they pass all the tests during their QA, they’re ready to certify. “We rarely surface issues during certification. There are minor exceptions, but on the whole, almost all our certifications are getting done in less than two hours. It’s not shorter because we’re skipping steps. It’s shorter because all the steps that need human intervention are moved to the end.”

Dispelling the Myths

So with all the positive benefits attached to automating certification, why aren’t more firms electing to adopt this approach?  It may in part be due to a general apprehension that automation would make for an impersonal client experience—much like the frustrating automated systems many of us encounter every time we call our banks about issues related to our personal finances.

But Jacob Northey, Managing Partner at Lasalletech, disagrees. “There is a general misconception in the industry that in the transition from manual to automated on-boarding, firms will lose the personal connection they have with clients,” said Northey. “However, this couldn’t be further from the truth. Instead, it merely speeds the process along, automating the simpler and repetitive activities, while still allowing clients that one-on-one interaction for more complex issues. Clients are able to test and interact with the system at their convenience. They get immediate feedback on any issues, instead of having to wait for the IEX staff to search through extensive FIX logs in order to communicate errors. Human support is available anytime clients need it.”

According to IEX, FIX Conductor gives their staff visibility into the exact screens clients are seeing, helping them offer improved technical support.

“Typically, in certification testing, a client and exchange’s FIX logs are not identical. We don’t see them in the same format, and this can create confusion about what’s truly going on,” said Zhao. “One of the key reasons why we selected the Lasalletech product is because it allows our certification professionals the ability to view screens in the exact same way clients view them. This functionality goes a long way toward helping us avoid any miscommunication issues, and thereby is helping us offer clients the quality support and human touch they expect.”

Introducing Internal Process Improvements

Adopting an automated approach to client on-boarding and certification has helped IEX to control staffing costs, improve efficiencies and get more done with fewer resources. “Under our current model, clients are able to directly interact with our trading system,” said Zhao. “Then, we’re immediately alerted if something is out of place. Not having to manually handle the entire process from beginning to end is proving to be a tremendous time-saver.”

Lasalletech’s Northey describes, “Typically, testing that happens in exchanges and ATS’s follows a “develop now, test it at the end” approach. Firms dedicate a certain number of weeks to develop the interface, perhaps testing against an internally developed simulator. Then they attempt to certify against the trading venue. In a manual certification, every time you send in a test order and something doesn’t work as expected, you have to hunt through a lengthy FIX log to figure out what went wrong. On the other hand, using automated certification gives you immediate feedback on errors without you needing to chase them down. The interface clearly identifies these errors and presents them to you in plain English with the associated FIX tags.”

Enhancing Testing

Another drawback of relying on manual on-boarding and certification testing is that it inhibits firms from testing more complex scenarios. When testing manually, developers will typically evaluate very simple test cases since they have to setup everything by hand, which is incredibly time-consuming. But a more sophisticated platform can easily automate the entry of tens or even hundreds of data points for tests that are closer to real world scenarios. In fact, introducing FIX Conductor has helped IEX to enhance the sophistication of its testing. A process that is typically rudimentary (involving handwritten notes and emailed spreadsheets) has been transformed into a highly precise testing methodology.

“The degree of complexity that goes into developing a trading system and figuring out emergent behavior exceeds the domain of any one single person. That’s why it makes sense to leverage automation,” said Zhao. “There’s no way to test every scenario that could ever happen. But the only way to even get close is to take a systematic approach that involves pinpointing which scenarios are high or low risk, frequent or infrequent, and testing them multiple times.”

Testing for edge cases, such as race conditions, against client systems has also become easier for IEX. Encountering race conditions was once an infrequent occurrence for exchanges, but as they place increasingly heavier loads on trading systems these issues are exhibiting themselves more often. Unfortunately, many firms’ testing processes are not robust enough to properly detect these rare events. We saw evidence of this last year when one of Nasdaq’s trading systems experienced a glitch caused by race conditions. The error caused mismatched Facebook share prices, which, in turn, delayed trading of the stock by half an hour.

Without an automated approach for identifying race conditions, IEX would need to quickly queue up orders manually. However, with FIX Conductor, the firm has been able to code the process and make it entirely repeatable. This approach saves time and minimizes the risk of potentially disastrous race conditions compromising the integrity of IEX’s systems.

Assessing Client Feedback
IEX reports an overwhelmingly positive response from clients in regard to the FIX Conductor on-boarding and certification system. “There is a little bit of a learning curve for our clients in understanding how to interact with a new system. But the trade-off is an incredibly efficient on-boarding experience that gets them up and running on our systems faster. They value and appreciate that,” said Zhao.

Visualizing the Way Forward
Utilizing automated client on-boarding and certification testing via Lasalletech’s FIX Conductor is supporting IEX Trading in differentiating itself in a highly competitive marketplace. This technology is helping the startup exchange create a frictionless user experience that allows clients to connect to its trading systems faster. The on-boarding process that typically takes weeks or months has now been streamlined down to just a couple of hours.

Furthermore, introducing more sophisticated certification testing has enhanced the reliability of IEX’s trading systems, making the risk of precarious outliers, such as race conditions, more manageable. “When it comes to testing, it’s no longer enough to merely test because something in the system has changed. Instead testing needs to be an ongoing endeavor that is built directly into your development process. Fortunately, now we’re doing more testing—and we’re doing it more consistently,” said Zhao.

In terms of future plans for the system, IEX is looking to enhance the quality of its testing practices even further. “Test building is an iterative process. As clients’ needs develop, we must ensure that our tests remain relevant,” explained Zhao. “This is an area where FIX Conductor has been useful. It allows us to design a new test scenario once, and then we’re able to re-run that test repeatedly.”

IEX anticipates that improved on-boarding efficiency combined with enhanced testing will be a solid foundation that will help it attract increasing business flow in the weeks and months to come. 

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