While the influence of FIX has spread rapidly in global equity trading markets, its role in broader asset classes has been less vociferous. FIXGlobal asked market leaders, MarketAxess, Tradeweb and Fidessa LatentZero for their views on the impact of FIX in the fixed income arena.
FIXGlobal: FIX4.4 was introduced back in 2003 as a version that provided strong support for fixed income trading. How successful do you feel 4.4 has been?
Bill Hayden (Tradeweb): The adoption of FIX 4.4 was slow at first as people jerryrigged their existing FIX 4.2 engines to handle data for fixed income securities. Over time, however, firms began to address issues such as support and scalability and it became obvious that using FIX 4.2 for fixed income was no longer desirable.
The big wave of adoption for 4.4 came as clients gradually upgraded or replaced their FIX engines. In many cases this was a result of an upgrade or replacement of an existing order management system.
Nick Themelis (MarketAxess): FIX 4.4 was developed to provide realtime, counterparty connectivity for the fixed income community and, since its inception, we have seen strong interest from the buy-side community. For example, 63% of our connected clients access our platform via FIX. We have built partnerships with OMS vendors who use FIX connectivity for their operations, which has further expanded FIX adoption for the buy-side community. We’ve also seen several fixed income ECNs use FIX connectivity.
FIXGlobal: Where the protocol has not been widely adopted, do you feel its been limited by technical strengths or by other business environment issues?
Hayden: In the current climate, the adage of “if it ain’t broke, don’t fix it” takes hold. Firms are not able to make strategic upgrades and are instead forced to switch into a mentality where the primary goal is to keep the lights on.
Another reason that the protocol has not reached a one hundred percent adoption rate is that in many cases fixed income takes a back seat to equities. If a firm is using FIX 4.2 for its equity business then they might not see the incentive to upgrade to 4.4 if the volume of fixed income is small.
Themelis: There is nothing technical or conceptual that prevents the fixed income community from adopting the FIX Protocol. There was a legacy investment in proprietary protocols in the early days of fixed income etrading, however as automated trading increases, clients are looking to take advantage of more efficient, more reliable connectivity technology.
Many leading STP tools now support FIX 4.4, allowing for fully electronic interaction across all functions. Pre- and post-trade processes such as order creation, negotiation and trade allocations and settlement can now be fully automated.
Additionally, there are automated, reliable tools available for market participants to get onboard and easily overcome any barriers to entry such as cost or technology development. Greenline’s suite of FIX Protocol solutions and services are designed to ease the FIX adoption process for clients looking to update their legacy systems.
There is growing interest in messaging standards like FIX 5.0 for structured products such as credit default swaps. We have supported CDS etrading since 2005 and continue to offer the technology and access to liquidity for credit etrading.
FIXGlobal: The US has a much more diverse range of fixed asset types than elsewhere in the world, and is typically an over-the-counter (OTC) market. However, some asset types are being offered in a centralized exchange market, such as the NYSE bond market. Do you see this trend towards a centralized market as a way to achieve greater price transparency in the current US economic situation?
Hayden: The primary transaction venue for client-to-dealer fixed income and derivatives trading is likely to remain in the OTC space for the foreseeable future. If we have learned anything in the recent credit crunch it is the importance of the over-the-counter market as credit becomes tight. The primary dealers play an invaluable role in creating liquidity, which leads to lower costs for clients.
The issue of market transparency is also an important driver for the continued role of the OTC model. Due to the very large size of trades, the buy-side is very reluctant to show their positions in an open exchange.