Lisa Taikitsadaporn, of Brook Path Partners and Chair of the FPL Global Fixed Income Technical Subcommittee and Sassan Danesh of Etrading Software chart the evolution of the FPL-FICWG Initiative.
Background and Objectives In the nearly 20 years of the FIX Protocol standard, the protocol has been synonymous with equities electronic trading and has become the de facto standard used by equities trading systems globally. FIX has evolved over those years to continually support the needs of the global user community across different user groups and has expanded into additional asset classes. In 2001, FIX Protocol Ltd (FPL) signed a memorandum of understanding with the Bond Market Association (which merged with the Securities Industry Association to form SIFMA) to collaborate on enhancing the FIX Protocol to support the trading life cycle of cash fixed income products.
This initiative resulted in FIX Protocol enhancements in version 4.4 of FIX to support additional fixed income asset types, as well as supporting workflows such as quote/negotiation, post-trade allocation and confirmation/affirmation workflows. The fixed income asset types covered in the 2003 release of FIX 4.4 included: US Treasuries, Agencies, Municipals, TBA Mortgages, Corporates, Commercial Paper, Repurchase Agreements and Security Lending transactions as well as their European counterparts.
The release of version 4.4 increased the penetration of FIX into the fixed income space, primarily for buyside connectivity with electronic platforms or directly between buy-side customers and the brokerdealers. However, many of the Electronic Communication Networks (ECNs) active in the fixed income markets did not implement these specifications for connectivity by the broker-dealer community, who provide the liquidity to the markets.
In June 2011, the global investment banking community, with the support of Etrading Software and Expand Research, launched the Fixed Income Connectivity Working Group (FICWG) initiative, aiming to standardize connectivity between major sellside banks and execution venues for fixed income trading through the use of the FIX Protocol and other open industry standards. This initiative was supported by FIX Protocol Ltd. in the same month, and the result was the creation of a working group under the FPL Global Fixed Income Technical Subcommittee to produce the required recommendations to achieve the standardised connectivity.
The initial focus for FICWG in 2011 was standardisation of OTC swaps trading, which was under increasing regulatory scrutiny following the collapse of Lehman Brothers in 2008, and the resulting realisation that regulators required better and more timely information on OTC derivatives trading in order to be able to monitor systemic risk across the market. This realisation led to the mandating of the trading of standardised OTC swaps contracts onto newly established and regulated execution venues known as Swap Execution Facilities (SEFs) in the United States and Organised Trading Facilities (OTFs) in Europe.
Lisa Taikitsadaporn, FPL Global Fixed Income Technical Sub-committee Co-Chair; Managing Partner, Brook Path Partners, Inc. and Hanno Klein, FPL Global Technical Committee Co-Chair; Senior Project Manager, Deutsche Börse Group talk about the Securities Investment Roadmap and the Standards Coordination Group.
For the first time, there is actual proof of the long promised commitment from standards bodies and the industry to work together under the ISO 20022 umbrella. The Standards Coordination Group, the guardian of the recently updated Securities Investment Roadmap, is steering this collaboration. It is becoming the voice of open standards, promoting it up to law makers and regulators in Washington DC and Brussels.
Because the financial community is a vast one, encompassing institutions across the globe that deal with diverse asset classes at different points in the securities trading life cycle, different organizations have traditionally been responsible for developing their own messaging schemes. Today, financial firms often combine a great range of trading activities; therefore, the messaging standards from different organizations often intersect, but remain incompatible.
Within the financial services industry, there are multiple standards being used, hence the desire to ensure some level of interoperability. It is clear to many market participants that the FIX Protocol is the de facto standard for pre-trade and trade, that FpML is the de facto standard for OTC Derivatives, that ISO is the de facto standard for settlement and payments, and that XBRL is the de facto standard for business reporting. The Industry would benefit from an approach that leverages and includes these standards into a broader framework without reinventing and creating redundant messages that increase implementation costs and cause confusion for the industry.
The Standards Coordination Group began collaborating on the Securities Investment Roadmap in 2006, publishing the first version of the Roadmap in 2008 and the latest version in October 2010. The Investment Roadmap provides market participants with consistent direction when using financial services messaging standards by visually mapping the protocols to their appropriate business processes across asset classes and it also lays the groundwork for moving towards a common business model, ISO 20022, for the securities industry.