The Case for FIX 5.0

In the following section, we look at various strategies industry participants might follow in the adoption of FIX 5.0.

Liquidity Centers/Exchanges

Exchanges are proactively looking to retain and grow trade volumes by providing clients rich functionalities, low latency and greater market depth at lower transaction costs. FIX 5.0 can form an integral part of the strategy of maintaining leadership by providing benefits to clients that are in the process of implementing FIX 5.0 and also to those clients using legacy FIX versions for connectivity, thereby enabling quicker, more cost effective integration of communication channels. Exchanges/liquidity centers can fully migrate from earlier versions of FIX and non-FIX protocols and phase out their proprietary protocols. We have already seen progress on this strategy with leading exchanges such as BSE rolling out a FIX 5.0 compliant interface.

Sell-Side

It is important for sell-side firms to not only look forward to maintaining state of the art exchange connectivity infrastructure for better price discovery and distribution, but also to look internally for improvements in their core trading platform infrastructure, for supporting higher volume, lower latency and fewer trade errors.

Implementation of FIX 5.0 can help lower latency on account of fewer message translations and lower trade errors. However, changing the core trading infrastructure is not easy, as a typical sell-side firm will have a plethora of systems, both off-the-shelf and proprietary, that communicate in various versions of FIX. Hence, the sell-side firms can adopt a “Session Migration” approach to FIXT.1.1. This will allow firms to first connect internal systems running FIX 4.X over FIXT.1.1, thereby benefiting from the transport independence framework.

In the long run, sell-side firms can migrate to FIX 5.0 to fully benefit from the rich business functionalities offered by the protocol as well as achieve adoption of a single protocol that caters to internal and external systems.