FIX Issues Electronic Bond Trading Guidelines

Terry Flanagan

FIX Trading Community has published updated guidelines for the electronic trading of bonds and swaps using the FIX messaging standard.

The guidelines have been designed to enable market participants to benefit from cost effective and efficient connectivity to the growing number of bond trading platforms, emerging Swap Execution Facilities (SEFs) and upcoming Organized Trading Facilities (OTFs) set to launch across the U.S and European markets.

“FIX has played a huge role in revolutionizing the equity markets, enabling new trading venues to establish themselves easily, offering cost-efficient connectivity to trading partners across a fragmented marketplace,” said Sassan Danesh, co-chair of FIX Trading Community’s Global Fixed Income Subcommittee and managing partner at ETrading Software. “By encouraging the use of FIX for fixed income across the broad range of financial instruments covered by the updated guidelines, we hope to witness similar results in this market, beginning with the SEF go-live later this year.”

As regulatory requirements, in the form of Dodd Frank, MiFID II and Basel III, seek to enhance transparency, reduce risk and increase capital requirements, a new fragmented market structure for fixed income trading is emerging.

The original swap guidelines (launched in March 2012) and cash bond recommendations (released earlier this year), were developed to enable market participants to connect to, and ultimately trade, the most liquid products (cash bonds, credit default swaps and interest rate swaps) on the new venues in a standardized and cost-effective manner.

‘Being able to contribute to the guidelines development has proven very valuable,” said Daniel Marcus, CEO of Trad-X, a platform and an active participant in the Global Fixed Income Subcommittee. “The process provided us with a detailed insight into how they were shaping up so we could start to consider their implementation into our trading platform ahead of time with our customers. As the guidelines have been designed so they accurately apply to existing business workflows, this has significantly eased the implementation process for the marketplace as a whole.”

The updated swap guidelines have now been extended to also support the latest regulatory developments impacting fixed income trading including the central clearing and Legal Entity Identifier (LEI) initiatives, and provide guidance on market conventions, reducing the risks associated with misinterpretation by trading partners.

As FIX minimizes the financial implications of market entry, offers increased choice by reducing switching costs and enables considerable connectivity efficiencies, the guidelines have witnessed rapid take-up.

They have been adopted by almost all SEFs planning to launch in Q4 2013 and once the details pertaining to OTFs are finalized within MiFID II, a similar trend is expected in Europe. Additionally, the cash bond guidelines are being actively implemented by venues in-line with technology upgrades and investment cycles.

The latest version of the cash bond guidelines have been extended to support the U.S. credit markets, post-trade allocations for fixed income trades, and firms wishing to book voice trades electronically

The updated cash bond recommendations explain how the guidelines can be used with FIX 4.4, in addition to the very latest version of the messaging standard.

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