Latency Measurement: Impact of the FIX IPL Standard

TS-Associates’ Henry Young, Co-chair of the FIX IPL Working Group, discusses the anticipated impact of the new FIX Inter Party Latency (FIX IPL) standard.

The FIX Inter Party Latency (FIX IPL) standard, version 1.0, will hit the streets shortly after this issue has gone to press. Now that all the hard work of designing, formulating and testing the standard has been completed, thoughts turn naturally to issues of adoption and impact on the market for latency monitoring solutions. But let’s first revisit the motivation for FIX IPL.

The 1.0 release of FIX IPL is designed to achieve two things:

• The standardisation of where latency is measured, and

• Interoperability between latency monitoring solutions.

The first point enables latency statistics published by different firms to be compared more meaningfully – ‘apples to apples’ style. The second point enables the latency monitoring solutions operated by different firms to be interconnected or ‘peered’, so that inter party latency can be measured without requiring each firm to operate a latency monitoring solution supplied by the same vendor.

The next point to consider is the likely adoption of such an interoperability standard. What’s in it for financial market participants, and for latency monitoring solution vendors? As participation in the FIX IPL Working Group has demonstrated, both constituents see advantages in such a standard existing and being widely adopted. This will make inter party latency monitoring easier, it will reduce costs for participants, lower the barriers to entry for new solution vendors, thereby creating a larger, broader and faster growing market for latency monitoring solutions. This will be to everybody’s advantage. Those who follow the proprietary route and fail to adopt the standard will be left out in the cold. We expect support for FIX IPL to become a standard tick box item in latency monitoring RFPs.

FIX IPL Architecture

The FIX IPL architecture has been designed to support latency monitoring for price and order flows, both FIX and non-FIX, in a wide variety of situations. This schematic shows a simple case that demonstrates the advantages of the FIX IPL interoperability standard. It shows an order flow between  two trading parties A and B. Thesecould be either a buy-side client and a broker, or a broker and an exchange. The flow is monitored in each party’s domain using a FIX IPL Source, which observes each message in the flow, extracts some content from each message for unique identification purposes and associates a time stamp with each message observation. A FIX IPL Source transmits a series of observation messages, each of which contains the unique identification content from the observed message and an observation time stamp.

The FIX IPL messages generated by each FIX IPL Source are then brought together by a FIX IPL Sink, which could be operated by either of parties A or B, or by an entirely different party C, as shown in the schematic. The FIX IPL Sink then correlates the observation messages from each of the FIX IPL Sources, matching up the message observations at A and B, and calculating latency by subtracting the observation time stamps. The resulting per-message or per-order latency metrics can then be aggregated into time interval statistics describing the latency properties of the order flow.