FIXML Moves Ahead: as a Global Messaging Standard

An increasing number of exchanges and clearinghouses are adopting FIXML, an XML version of the FIX Protocol, for communicating post-trade data. Now it is time for clearing firms and vendors to weigh in. If the clearing members want to encourage the adoption of a global standard for post-trade messages to eliminate managing multiple interfaces, then 2010 is an important year. Eurex, NASDAQ OMX, MEFF and LCH.Clearnet are asking for user input on the initiatives they have underway.

FIXML is being implemented in various stages at exchanges in the U.S. and Europe. Major U.S. clearinghouses have implemented FIXML for all post-trade data and are offering additional functionality via FIXML. Certain European clearinghouses are testing the water by offering specific post-trade data via FIXML alongside their proprietary interfaces. If clearing member response is positive, they will make additional messages available via FIXML.

The widespread adoption of a post-trade standard interface will have significant benefits for clearing members. Managing proprietary interfaces with more than 60 exchanges that trade futures and options is time consuming and costly. The events of the last two years have driven more attention to costs and controls, says Conor Sherrard, Executive Director and Business Manager for Europe, Middle Eastern and African futures and options for J.P. Morgan. “The technology exists to deliver even greater straight through processing and cost reduction but without the adoption of an international protocol, firms are faced with having to maintain multiple systems to replicate essentially the same functions across the range of exchanges and clearinghouses they access,” he explains.

Legacy interfaces can sometimes limit the functionality available to clearing members. “By adopting this initiative we would lay the foundation to achieve critical improvements around risk management, more accurate trade commissioning and even greater automation across operations in areas such as close-outs,” says Sherrard.

FIXML provides a flexible method of formatting and describing data so that it can be recognized by other systems. Data values can get as large as needed because there are fewer limits imposed by the format of the message. The number of data fields contained within a transaction record is limited only by the message definition. Contract and account information may be added as necessary without size or format restrictions. For numeric values containing decimal points, XML allows flexible decimal place positioning, eliminating price alignment inconsistencies. On the exchange side, new products can be brought to market faster and more efficiently. The standard supports complex and non-vanilla products more easily and offers fewer barriers to entry for new exchanges.

The emergence of FIXML as a global standard began in 2000, when the Futures Industry Association launched an initiative to create a standard interface for clearing organizations to communicate with their members. The Chicago clearinghouses recognized that their ability to offer new products and new post-trade functionality was limited by their reliance on TREX, the messaging standard developed in the early 1990s for Chicago Mercantile Exchange and Chicago Board of Trade to communicate with members. CME, CBOT, Options Clearing Corporation, New York Mercantile Exchange, and New York Board of Trade participated in a working group that considered several formats before settling on FIX, which was widely used on the front-end.

The clearinghouses did not want to be limited by a fixed number of characters in the message so they agreed that XML (eXtensible Markup Language) should be the basis for the post-trade format. They approached the FIX Protocol Organization about creating an XML version of the FIX Protocol.

While firms agree that a common interface globally would be more cost efficient, it was the threat of regulatory intervention that prompted the U.S. and European exchanges to work together on a common standard for the listed derivatives industry. In 2003, the Giovannini Group, a quasi-governmental body established by the European Union to identify the principal barriers to cross-border clearing settlement, directed European exchanges to agree a common messaging protocol for European exchanges. U.S. exchanges had already begun adopting FIXML as a standard and the futures industry wanted to avoid one standard for the U.S., another for Europe and perhaps a third for Asia. FIA approached the European exchanges about agreeing a global standard.

The FIA and the U.K. based Futures and Options Association established a cross-border post-trade working group (PTWG) in 2006 which included CME, Eurex, New York Mercantile Exchange, New York Board of Trade, LCH.Clearnet, MEFF, OCC, and OM. Recent additions to the group include Intercontinental Exchange, and NYSE Liffe.