Home › 
Current Issue
+ Back issue
As a member-led organization, FIX Protocol Ltd (FPL) empowers its members.

The Future of Computer Trading in Financial Markets Working Paper

Deutsche Börse’s Hanno Klein, Co-Chair of the FPL Global Technical Committee, expounds on the role of FIX semantics in standardised access to trading and clearing services.

Why are Interface Semantics Important?

Hanno Klein, Deutsche BoerseSemantics represent the look and feel of an interface from a nontechnical perspective, but can influence overall implementation and testing effort much more than the syntax. If you will, semantics are the interface language and standardization is about speaking the same language, for example FIX.

The Difference between the FIX Syntax and FIX Semantics

Syntax is the encoding of bits and bytes on the wire; for example, whether you use ASCII or binary values for numbers or whether you have a FIX tag=value syntax or an XML syntax  like FIXML. The syntax consists of messages, components, fields and valid values that are the building blocks for the semantics. FIX semantics is about the business functionality and how it is expressed within the building blocks of FIX. FIX Semantics relates to the elements with which information is conveyed and about the flows through which these elements are passed back and forth between two or more parties. Let me give you some examples.

  • A combination of “35=D” and “35=8” is the tag=value syntax for the semantic “submission of a new order for a simple instrument followed by a confirmation or rejection being returned”. Readers probably know these tags by the more familiar terms NewOrderSingle and ExecutionReport.
  • 59=4” is the tag=value syntax for the semantic “order needs to be filled completely upon entry or cancelled immediately”. The FIXML syntax for the same semantic is TmInForce=”4”.The corresponding term for the order, Fill-Or-Kill (FOK) is a well known part of the FIX language.
  • “38=1000|1138=100|1083=1|108 4=3|1085=50|1086=80” stands for “reserve order of 1000 that is to be displayed initially with 100 and to be replenished whenever a fill occurs with a randomly chosen quantity between 50 and 80”. Some might be more familiar with the term “iceberg order” which is not used by FIX.

The mapping of semantics to syntaxis  not trivial and standardization is about using the same map for the same semantics to ease the burden for the software developer and reduce costs.

How can FIX semantics be used more effectively?

Greater effectiveness will come through an increasing awareness of the importance of FIX semantics for true standardization. FIX training courses could be offered with a focus on semantics and put less emphasis on the technical aspects of the protocol such as the encoding or the session layer mechanics. Usage guidelines for new and existing functionalities can help to understand the semantics behind FIX message layouts.

Without semantics it is impossible to determine which FIX fields or valid values will be present in which contexts. The syntax will merely show all possible values of a field, which may be sufficient for the developer, but not for the person who then wants to test the interface.

Wellington Management’s Lee Saba and Capital Group’s Brian Lees and Bill Rosner discuss the FPL Americas Buy-side Working Group and its recent work on execution venue reporting.

FIX Protocol Ltd. (FPL) launched Buy-Side Working Groups in the Americas, EMEA and Asia Pacific regions in order to provide a platform for buy-side representatives to discuss  how their needs can be efficiently met by the automated trading community. As an initial task the group prioritized their main concerns which resulted in a focus on the following areas:

  • Post-Trade - generating best practices for different allocation methods and creating a central repository for ‘best practices’ that users could leverage to standardize messaging in the post-trade space.

  • Test Symbology - providing the financial community with risk averse tools for production validation of complex trading and portfolio  management systems.

  • Execution Venue - standardizing the reporting of the executing venue and creating a rules of engagement/best practices document.

The primary focus of the Execution Venue Initiative, listed above, has been to seek a more consistent response from the broker-dealer community with regards to broker reporting of the execution venue on each fill. As a result, the group has sought to standardize and expand the information received in trade reports from brokers by creating a best practices document to help resolve these challenges. The buy-side participants would like to encourage the sell-side community at large to implement these guidelines after consulting with their clients on the readiness of their systems.

Although some of the information being requested is not new and brokers have been supplying this data in their trade reports for some time, the type, amount and how information is sent from distinct brokers to the buy-side varies. Therefore, the information that is being requested as part of the guidelines will enable the buy-side traders to:

  • Increase awareness of where their orders are being filled as the market continues to fragment into dozens of dark and lit trading venues.

  • Better understand if the venues receiving their orders are the most desirable.

  • Enable money managers to determine whether or not the routing decisions of the brokers were made to the benefit of the broker or the client.

It is important to note that this initiative is not focused on any major changes to the FIX Protocol specification itself but the establishment of a set of best practices with a goal to  lead to greater consistency and standardization among broker practices.

FIXGlobal: What was the genesis of this idea?

Bill Rosner, Manager of Application Development, The Capital Group Companies and FPL Execution Venue Working Group Co-Chair: The idea to do this particular effort stemmed from a survey that FPL held in early 2010. Buy-side firms were asked to rank the importance of various streams of work that  we were preparing to undertake and the Execution Venue topic received a great deal of interest.

Lee Saba, Vice President, Wellington Management and FPL Buy Side Working Group Chairman: The execution venue concept is not a new idea but one the FPL Buy-Side Working Group felt could satisfy our trading desks’ demand for more transparency in the equity marketplace. As the Buy-Side Working Group was forming, we quickly realized we had many similar initiatives and decided to pursue them together. As a collection of buy-side firms we felt if we agreed in principal to an execution venue standard the dealers would have  more reason to adopt the request.

Brian Lees, AVP, Manager of Application Development, The Capital Group Companies and FPL Execution Venue Working Group Co-chair: As the Buy-Side Working Group was discussing where to focus its initial efforts, this topic clearly struck a chord. As the equity market has become increasingly fragmented through the proliferation of electronic venues in recent years, it feels natural to begin asking for information about where and how our order flow is being executed.

Dmitry Koltunov of Highbridge Capital Management opens up to FIXGlobal about the buy-side expectations for FIXatdlSM algos and how vendors and sell-side firms can improve their offerings.

How do you evaluate a broker’s FIXatdlSM offerings? Are you requiring or looking for them to hold to a standard?

Our preference is towards FIXatdlSM 1.1 or 1.0, since the recent iterations are able to capture more details of the algorithm. However working with any version of FIXatdlSM is already a significant improvement over a static document. Since our proprietary EMS/OMS is built around a customized implementation of FIXatdlSM, the broker FIXatdlSM can never be taken “as-is”. We also do some minimum tweaking to the layout, rules and default settings based on our trader’s preferences. This allows us to have the same look and feel for similar algos from multiple providers.

The standard has been evolving significantly, and in our view, it would be beneficial for the industry to come to more of a convergence point. Having every FIXatdlSM consumer require a different version may be detrimental to overall adoption, because it raises the maintenance cost for the vendors to keep backwards compatibility for each client. The FPL Algorithmic Trading Working Group (which developed FIXatdlSM) has now drawn a line in the sand with the latest version and is making a widespread industry push for it. FIXatdlSM 1.1 is quite comprehensive, so we would be pleased to see the community shift gears from evolving content to aiding adoption of this version. However there are constantly new types of Algorithms coming to the market and this will keep pushing the standard to grow and change. The challenge remains for the industry to work collaboratively to evolve at a measured pace while fostering widespread adoption.

How responsive are your brokers to your requests for new algorithmic products?

We have seen varied response times, which range from a few weeks to over a year, depending on the broker, algo type and level of customization. Most bulge bracket firms are responsive, but the smaller boutiques can vary from poor to great, with those that explicitly focus on execution at the forefront. Some brokers have also put together custom solutions for our traders, and those timelines vary from weeks to months.

It has been a challenge to integrate with brokers that tie their algos to a particular EMS. In one particular situation, a vendor indicated that it would take over a year to make its algo accessible through FIX. Waiting was not an option, so we ultimately worked with another vendor with similar functionality that did not require a particular EMS and could integrate through FIX and FIXatdlSM. Vendors that realize that their real product is execution logic, as opposed to a particular display or EMS, wind up being more successful. In general, we have recently seen more brokers respond to us with FIXatdlSM. This is a positive development, because a year ago, only a handful of brokers were even aware of it. In many cases, we were the first firm to ask our brokers for FIXatdlSM files, so we find it encouraging that more than half are now able to serve up the files. When we do request FIXatdlSM, the timelines vary from weeks to months, and we have seen some firms hire consultants to complete it more quickly.

Timing is a differentiator and FIXatdlSM is critical to this. In general, traders become accustomed to how certain algos behave, and the first algos to get ’test-driven’ have an advantage. As the space becomes increasingly crowded, I can see the laggards start to struggle to keep a presence.