SEFs Adopt FIX Trading Protocol

Terry Flanagan

A trading protocol for swap execution facilities developed by FIX Trading Community has been adopted by a majority of SEFs, including BGC Derivative Markets, Bloomberg, trueEX, GFI Group, ICE Swap Trade, MarketAxess, Tradeweb (TW and DW), Tradition Trad-X and Tullett Prebon.

The FIX Trading Community has been working closely with the investment community since 2011 to develop guidelines on how FIX could be used to trade swaps following the requirement by Dodd-Frank a year earlier for regulated trading of certain swap instruments.

With the commencement of mandatory trading for selected swap instruments this year, this work has resulted in the establishment of FIX as a de facto standard for swaps trading on SEFs.

“We’ve been working for several years to get to the point where there is consensus in the industry as to how to use FIX for trading swaps electronically,” Sassan Danesh, co-chair of FIX Trading Community Global Fixed Income Subcommittee, and managing partner of Etrading Software, told Markets Media. “Not only did we come up with the specification, but actually it’s now the de facto standard in the marketplace.”

With the proliferation of swaps electronic trading across the globe, the FIX Trading Community is looking to extend support of the protocol to trading platforms in Europe for Mifid II as well as for regulatory requirements in Asia.

“We’ll know for sure as the regulations around MiFID II solidify, but all the indications are that most of what we’ve done will port across, and we’ll make sure that we then tweak whatever is required to get it to be global,” said Danesh.

MiFID II requires mandatory trade execution and reporting for OTC swap instruments. The reporting requirements kicked in earlier this year, and the trade execution requirements are expected to come into force at the end of 2016.

Justin Peterson, managing director and head of institutional technology at Tradeweb, said in a statement: “Tradeweb supports FIX for our fixed income and derivatives marketplaces in the US, Europe and Asia because there are tangible benefits to our clients. As electronic swaps trading continues to develop and evolve, we can add new functionalities or new types of instruments for our clients quickly and efficiently using the FIX Protocol.”

The Commodity Futures Trading Commission has adopted a “prescriptive” approach to SEF regulation, whereby it leaves relatively little leeway for SEFs to interpret rules. “While It makes it easy for people to know what it is that they need to be doing, there is a down side to that as well because it also meant a very large rule book with last minute clarifications,” said Danesh. Europe, by contrast, has adopted more of a principles-based regulatory regime.

FIX Trading Community has mapped some 80 SEF workflows involving market data, reference data, and post-trade into the protocol.

“The IDBs [interdealer brokers] have the central limit order book model, and we made sure that the workflow functionality for this group of prospective SEFs could migrate relatively easily,” said Danesh.

The same was done for the RFQ-based SEFs. “We made sure all these RFQ functionalities that were described and defined in the Dodd-Frank regulations were mapped in a way that it could be used by the incumbent platforms,” Danesh said.

Maged Hassan, global head of fixed income e-Trading technology at Morgan Stanley, said in a statement: “Morgan Stanley is a large supporter of standardization across OTC derivatives industry, and FID e-Trading as a whole. The FIX Trading Community commitment to achieve this standard drives transparency across venues as well as provides sizable savings across the market participants. We look forward to wide market adoption across all Swap Execution Facilities (SEFs).”

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