Swap Execution Facilities Embrace FIX Protocol

Terry Flanagan

Operators of trading platforms for over-the-counter products are adopting the FIX protocol messaging language, the industry standard for carrying data and trading messages around the world’s equity markets, to connect to dealers and post-trade services providers, such as central counterparties (CCPs).

Reforms such as Dodd-Frank in the U.S. and the European Market Infrastructure Regulation in Europe seek to achieve greater market transparency by requiring most types of OTC derivatives to be cleared through CCPs and traded on types of swap execution facilities (SEFs).

The adoption of FIX by new and existing venues will significantly increase efficiencies and cost savings within the fixed income markets.

“FIX is a great standard because it allows extra flexibility for banks to connect to our platforms,” said Francesco Cicero, head of e-trading at GFI Group, an inter-dealer broker. “For banks, FIX is a rational choice because they want to connect to multiple SEFs in the post-Dodd-Frank environment.”

More than 20 major financial institutions currently use FIX to connect to GFI’s trading platforms: CreditMatch (bonds and credit default swaps), GFI ForexMatch, EnergyMatch, and RatesMatch (interest-rate products).

The use of a standardized application programming interface (API) has had a dramatic increase in market activity across all GFI platforms, by as much as three orders of magnitude, said Jerry Dobner, GFI’s chief technology officer.

FIX Protocol (FPL), the industry consortium that publishes the FIX protocol, has developed best practices for the trading of credit default swaps and interest rate swap products.

The best-practices document provides guidelines to trading venues on how FIX can be implemented to deliver maximum benefit.

The adoption of FIX by trading venues is accelerating as FIX, which has achieved mass adoption for front-office equities trading, rapidly expands across the FX, derivatives and fixed income markets.

“This is all about value-added services, in that even exchanges that have in-house technology cannot cover all the bases given that technology and market structure developments are ever changing,” said Hirander Misra, chairman of Forum Trading Solutions, which offers security matching and surveillance services.

“No exchange, for example, produces its own hardware, which has to be refreshed every few years,” said Misra. “As we look up the stack, there may be apart from the core exchange technology, such as surveillance, clearing systems, risk systems and FIX gateways.”

The FIX infrastructure is also being leveraged in the post-trade process. In April, FPL issued FIX guidelines to enhance the global equity post-trade process between the buy and sell sides.

Many parties must cooperate in the post-trade process including buy-sides, broker dealers, custodian banks and central clearing. The current process is complex and requires considerable human intervention.

Extending the use of FIX substantially reduces complexity in the communication and matching process, resulting in fewer matching issues, faster processing and lower costs.

Related articles

  1. ISDA survey shows variety of views on whether increased clearing would improve resilience and efficiency.

  2. Crypto derivatives need central clearing to become a major asset class.

  3. New Collateral Transformers To Emerge

    Clients can agree collateral on a real-time basis and increase efficiencies.

  4. Margin and collateral are a new use case for bond ETFs.

  5. Additional volatility due to unforeseen macro events, particularly the conflict in Ukraine, were contribers.