Expanding FIX to Boost STP in the Post-Trade Arena

The Global Post Trade Working Group at FIX Trading Community is currently working to expand the use of the FIX messaging standard into new workflows and processes, namely broadening asset class coverage and enabling FIX to support workflows between asset managers, brokers and custodians. A lack of cross-industry standards allowing counterparties to collaborate has often frustrated attempts to improve efficiency and apply more automation. In a Q&A, David Pearson, Co-Chair of the working group, and Head of Post Trade at Fidessa, discusses how expanding the use of FIX will allow the industry to standardise workflows and achieve greater levels of STP in the back office.

Q: How widespread is the use of FIX in the post trade space today? Who are the main users and what do they use it for?

Pearson: The principal user base for this workflow is the institutional business in cash securities between the asset managers and broker. Almost all large and medium asset managers use FIX to distribute their fund allocations in cash securities to the brokers today. The next stage in the process is to complete the ‘middle office’ process with the brokers sending the Confirmation back to the client using FIX, and I am aware of around 100 asset managers now completing this Confirmation workflow using FIX.

Q: The Post Trade Working Group is currently working on broadening asset class coverage to include cleared derivatives products and money market instruments like repo. What is driving this and why now?

Pearson: The successful use of FIX post-trade for cash securities over the last few years has provided a real insight for many firms to the potential of FIX to transform post-trade workflow. The collaboration between buy-side, broker and vendor has yielded industry standards for electronic workflow upon which firms can rebuild their operational processes. The success for equities and cash bonds can be measured in improved accuracy and timeliness for datasets that in turn drive regulatory reporting, enhanced back office processing and improved client service. It is clear that the operation process for other traded asset classes like ETD, Repo and FX will all benefit from a similar approach.

Q: Can you describe the Working Group’s role in this process?

Pearson: The FIX Trading Community provides a framework that allows widespread committee-based collaboration. Any FIX member organisation can participate in any of the working groups. By seeking widespread participation in the defining of the workflow and messaging standards we are able to produce guidelines and working practices that support the business and operational requirements of the industry. The Post-trade Woking Group is one of the most active groups in the FIX world today, with many firms contributing their expertise to define workable and adoptable standards. The group today is defining the standards for the workflows in FX and Repo using this approach.

Q: The Group is also exploring the options of using FIX to support the settlement workflows between asset managers and custodian, and between broker and custodian. What’s driving this and why now?

Pearson: The investment in the technology and the knowledge and resources to support FIX has proved to have been a success, and expanding this investment further into the back office is a natural direction of travel. As internal system architectures have evolved to use FIX through the front and middle office, it is a natural progression to look at instructing the custodian or settlement provider using the same standards. In parallel to the broadening of the asset class coverage, custodian messaging is an area that is being discussed at the committee level, and there is widespread participation to define the market practice guidelines and specifications.

Q: What will be the main benefits/opportunities for firms in extending FIX into new workflows and operational processes?

Pearson: There are two principal aspects to this. Firstly, the efficiency and accuracy of data administration that is handled electronically rather than manually is a clear win for the operation. There is a surprisingly high amount of email and file-based data processing that requires post-trade staff to manually re-key and reconcile data. Introducing electronic data processing, built around an industry FIX standard, provides each firm with an opportunity to move to an exceptions-based workflow.

Secondly, the opportunity to have data flowing from the back office to the middle and front office gives the opportunity to completely change the way the business understands and responds to the entire process.

Q: What hurdles / challenges have to be overcome?

Pearson: Incumbent systems and system providers have not historically been part of the FIX community and the collaborative approach it has to defining new operational models. Bringing these participants into the FIX community is a key task for the industry.

Likewise, the classic settlement/clearing back office system is not designed around a ‘Back to Front’ data flow. This model relies on each business being able to run a thread through each of the order/execution/allocation/confirmation datasets all the way into the settlement and clearing process. There is a need to redraw the map of data flow and access and bring the back office/clearing space closer to the operation and the front office.

There is no doubt however that the demand for change from the clients , and regulators, and the FOMO effect from some competitors adopting new real-time technologies is increasing the need for businesses to adapt. It brings cost, but it brings reward too.

Q: What is the timeline for both of these developments becoming a reality?

Pearson: For some firms, the introduction of FIX across the operational spectrum is a clear strategy, and by definition will extend across many different counterparties in all geographic regions. The key focus of these early adopters is to present the client with a full-service FIX compliant capability all the way through the execution and clearing workflow. The integration challenges for the clients is reduced significantly with this uniform approach to the client technology, and we are seeing buy-side firms benefitting rapidly from this approach. The industry will see brokers transform their client service by adopting this approach over the next 24 months. The alternative is to see clients take their business elsewhere to realise the benefits of a real-time and automated workflow.

To read the article click here

David Pearson is currently Co-chair of the FIX Trading Community’s Global Post Trade Working Group, and is actively involved in the global industry debate to promote new post-trade business workflows that improve efficiency and reduce costs.

David joined Fidessa in 1994 and his previous roles with the firm have included implementation and project management, business analysis and solutions architecture. As head of new business marketing for Europe he played a pivotal role in building Fidessa’s sell-side managed services business in Europe.