Raymond Russell, of the FIX Inter-Party Latency (FIXIPL) Working Group and Corvil lays out the use cases for the FIX Inter-Party Latency standard and the functionality of Version 1.0.
Goals for FIXIPL
The principal goal of the Inter-Party Latency Working Group is to ensure interoperability between different latency monitoring vendors. Interoperability is essential because latency monitoring is vital to running a low-latency service, therefore the people building systems need confidence that they can start with one vendor and still migrate to another. What we have seen through the proliferation of latency monitoring systems across the trading world, whether DMA providers, market data providers or trading desks, is that often the problems in managing latency within an environment happen between the cracks. Most firms have a good handle on latency in their own environment because they have engineered it well, but when they connect into a counterparty, it gets tricky.
A trader who sees a slowdown in response time will want to understand why they have missed trades or why their fill rates are low, but there are multiple places where that latency could have occurred. One place is in the exchange matching engine, which in some respects is unavoidable. If there is considerable interest and activity in a symbol at the same time, those orders will have to queue in the matching engine, purely as a result of market activity. The latency might also have occurred in the exchange gateway. It is common practice for exchanges to load balance across multiple gateways to accommodate high volumes, and you might have hit a slow gateway. Perhaps the service provider you connect through may have oversubscribed their network and you could be caught in cross traffic unrelated to trading. We have seen all these things happen, so the ability to see where the latency is occurring requires a consistent set of time stamps across the architecture.
Most exchanges already employ latency monitoring in their own environment, and inter-party latency and the sharing of time stamps, while less important within the exchange, enables them to work with their members to identify areas of latency. The benefits unlocked through interparty latency are somewhat biased towards the end traders, but they also extend to brokers and market data providers, who receive better quality execution feeds and market data speeds, respectively.
For exchanges, the need for latency transparency is becoming a standard requirement as latency has become a competitive differentiator. To the extent that exchanges are comfortable with their own infrastructure and are ready to compete on their latency, they will want to share their latency measurements with members. In my experience, venues and brokers are no longer as reticent to share their latency figures as they were before.
Version 1.0 Rollout
Much of the work that we have done with Version 1.0 involved deciding how to produce a standard that on one hand is simple enough to be easily implemented, while ensuring it can still perform in all the basic use cases. Version 1.0, due out in December 2011, is clean and simple and emphasizes the core capability to publish time stamps. We have agreed on the technical scope and it is now going through the formal review procedures required to be standardized by FPL, including a public review. The other important part to be done before it is real is to get two different implementations. There are a number of things that will be ready in a few months’ time, such as distribution through multicast and the ability to automatically group several measurements together across the trade, which we will include in the next version later next year.