By Terry Flanagan

FIX Adapts to High-Performance Trading

FIX Protocol Ltd (FPL) has published a working document which illustrates how FIX could be used to more effectively support the needs of trading venues and other environments where high speed trading is of the essence.

This initiative, which now requires robust industry review followed by testing, before release, has the potential to enable market participants connecting to these venues to benefit from cost effective and efficient communications.

“For the benefit of all financial institutions, the FIX standard has long become the preferred language for the application level of market infrastructure,” said Hanno Klein, co-chair of the FPL Global Technical Committee and a senior vice president at Deutsche Börse. “With the development of an open binary encoding standard, we can finally also address market requirements for high-performance trading interfaces.”

A draft of the new standard is to be tested as a joint effort by exchanges, software vendors and exchange users on its way to a final version ready for wide industry adoption.

The adoption of FIX as a standard trade messaging protocol has made it easier for firms to build risk management systems. FPL has defined a set of industry best practices for pre-trade risk checks, which can be implemented by systems that intercept FIX based trading messages.

“As instruments that have traditionally been traded OTC become more electronic and shift to an exchange-like model, FIX will be used as a standard messaging protocol,” said Brennan Carley, global head of Elektron platform at Thomson Reuters.

FIX already has functionality for trading OTC instruments, and FPL is working with Isda (International Swaps and Derivatives Association) to develop best practices for trading interest rate swaps and credit default swaps using a combination of FIX and FpML.

The adoption of FIX by trading venues has risen significantly over recent years and it is hoped that this latest development will further support the upward trend. FIX offers market participants reduced integration costs and considerable efficiency gains by connecting firms to trading partners in a standardized and cost effective manner, minimizing the financial implications of market entry and increasing choice as switching costs are reduced.

“By establishing an easily implemented open standard, FIX has not completely leveled the playing field; brokers, ECNs, ATSs, exchanges, and MTFs in Europe have many opportunities to differentiate their execution services,” Carley said. “But FIX has eliminated differentiation based on communications technology, and indirectly based on trading front-ends [EMSs and OMSs].”

Fred Malabre, CME Group

Fred Malabre, CME Group

By significantly reducing the verbosity of the FIX messaging language, the new way in which FIX can be used, called ‘Simple Binary Encoding’ (SBE), offers an alternative to proprietary protocols in the high speed trading environment.

“CME Group is currently using the FIX Protocol for its trading interfaces – it gives us, and all of the trading community, a path forward towards very efficient yet flexible standard interfaces,” said Fred Malabre, co-chair of the FPL High Performance Working Group and senior director at CME Group.

“I am very pleased with the FPL draft providing an encoding method and mapping for existing encoding methods, that can be used to encourage the development of standardized high performance interfaces for all layers of the latest version of the FIX standard,” he said.

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