FIX Tackles Execution and Post-Trade Processing

Terry Flanagan

Buy-side and sell-side firms are seeking ways to use the Financial Information Exchange (FIX) protocol to solve common issues on trade execution and post-trade processing.

Buy-side firms are working to define the usage expectations around the FIX fields that describe the final destination point of an execution, the capacity of the broker for that execution and the nature of liquidity (added or taken) for that trade.

The FIX Protocol Ltd. (FPL)’s Execution Venue subgroup, which is part of the Buy-Side Working Group, wants to standardize the reporting of the executing venue and have created a rules of engagement / best practices document to help resolve these challenges.

“The purpose of the execution venue initiative is to create greater transparency,” said Brian Lees, application services manager at Capital Group, and leader of the execution venue subgroup. “We have asked brokers to enrich trade fills with which execution venue they take place on, whether it’s an exchange or a dark pool, whether they’re acting as principal or agent, and whether they have posted or taken liquidity from an exchange. The next phase will be to see where they are routing orders, whether they are executed or not.”

The most important is Tag 30, which provides information on the market of execution for last fill, or an indication of the market where an order was routed.

Capital Group, which manages the American Funds family of mutual funds, has been using the FIX protocol for 13 years to support its custom order management system, and has been active in FPL for three years, Lees said.

In addition to Tag 30, other FIX fields identified for this purpose are Tag 29 (LastMkt) and Tag 851 (LastLiqudidtyInd).

Historically, FIX has been associated with pre-trade, but the industry is now looking at how confirmations and allocations can be delivered using FIX, including information about how settlement instructions and market fees can be represented.

FPL has published updated guidelines for the use of FIX for post-trade processing, which are now being successfully implemented globally by many investment managers, broker dealers and vendors.

As the tolerance level for post-trade inefficiencies is minimized, the industry is witnessing a determined drive to adopt free, open and non-proprietary standards as the platform on which firms can manage their operational risk and cost base.

“We created a specification for using FIX in post-trade, which has been implemented by a number of large buy-side and sell-side firms,” said David Tolman, senior financial systems analyst at Greenline Financial Technologies, and co-chair of the FPL Post-Trade Working Group. “These firms have realized greater benefits from using FIX in post-trade as opposed to traditional non-FIX proprietary mechanisms.”

Liquidnet and Capital Group have become the first broker and asset manager combination to successfully complete the post-trade lifecycle by utilizing the FIX Protocol. Capital Group was looking for an alternative to its current post-trade process, and leveraging its existing front office FIX infrastructure for confirmations seemed an efficient and cost effective solution.

By employing FIX Protocol, Liquidnet has a reliable and highly customizable tool that enables it to cater to the buy-side community’s evolving needs of minimizing cost, diversifying risk and processing trades seamlessly.

After using FIX for the order and execution processing, a buy-side firm can simply send a FIX Allocation with account-level breakdowns, and the sell-side firm will send a FIX Confirmation message for each account. After successfully matching, the buy-side firm then responds with a FIX message to affirm each confirm creating a succinct process with an audit trail.

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