Fixed Income Gravitates to FIX

Terry Flanagan

Encouraging adoption of the FIX protocol by new and existing venues will significantly increase efficiencies and cost savings for all participants within the fixed-income markets.

As Dodd–Frank reforms seek to achieve greater market transparency by requiring most types of OTC derivatives to be cleared through clearing houses and traded on swaps execution facilities (SEFs), a surge in new market venues is expected within the United States. Similar reforms are also expected to emerge from the upcoming MiFID II regulations in Europe.

“When thinking about fixed income markets, it is important to note that the Dodd-Frank Act (DFA) and Emir are pushing fixed income OTC derivatives to trade on regulated venues,” said Celent analyst Joséphine de Chazournes, in a report. “A natural evolution of this, and what was probably also in the initial mindset of members of the European parliament (MEPs) when they designed MiFID many years ago, would be to mandate cash fixed income trading on regulated venues, therefore enhancing transparency.”

Some European government bonds already trade very well in wholesale or institutional size on MTS, Bondvision or Tradeweb, which are all regulated venues. European corporate bonds small size venues such as MOT or EuroTLX also offer good retail liquidity in a regulated environment, said de Chazournes.

The Fixed Income Connectivity Working Group of leading sell side banks (FICWG) welcomes the positive response shown by the industry for the adoption of open, standardized protocols for the trading of fixed income cash bonds.

Launched by the global investment banking community in 2011, FICWG aims to promote the global use of the FIX Protocol and other industry standards across all fixed income products.

Since launch, FICWG has worked in collaboration with the FIX Protocol Ltd (FPL), to create best practices recommendations for trading fixed income instruments via the FIX Protocol.

“We are very supportive of the best practice recommendations and the adoption of standardized protocols for the trading of fixed income instruments as this will improve significantly the integration of our technology and thereby help reduce the cost of implementation for our Credit & Rates businesses,” said Pierre Moret, head of fixed income front office IT at Lloyds Bank Commercial Banking.

The FIX Protocol is the language used by firms across the world to facilitate electronic trading. It has achieved mass adoption for front-office equities trading, and its use is steadily expanding across the foreign exchange, derivatives and fixed-income markets.

Work on defining the first version of the best practices for trading bonds commenced in March 2012 and was formally published by the FIX Protocol standards body in February 2013.

Since then, many of the leading electronic bond venues have moved to adopt the open FIX Protocol and the associated best practices for the electronic trading of government as well as major credit instruments.

The list of adopters includes BGC Partners, BondDesk, Bonds.com, ICE/Creditex, Dealerweb, Deutsche Börse Group, GovEx, GFI, London Stock Exchange, MarketAxess, MTS, SIX Swiss Exchange, Thomson Reuters, Tradeweb and Tullett Prebon.

Deutsche Börse Group supports the work of the Fixed Income Connectivity Working Group to promote common standards for trading cash bonds via the FIX Protocol, the company said. As more fixed income OTC products trade electronically, the adoption of a standardized protocol helps increase market transparency while also significantly reducing connectivity costs for the market participants, according to a Deutsche Börse spokesperson.

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