Why the SEC Should Use FIX for the Consolidated Audit Trail System

The SEC’s proposed Consolidated Audit Trail System seeks to capture in real time details of all orders and trades on US equity markets. Instead of using a custom regulatory data protocol within this new system, Martin Koopman asks why don’t we just use FIX? After all, we are using FIX for nearly all of these orders and trades already.

The Financial Information eXchange (FIX) Protocol has been one of the biggest success stories within our industry in the last 15 years. FIX is used in equities, foreign exchange, fixed income, commodities, and derivative markets. FIX is used by the buyside, sell-side and exchanges. It is a global standard, being the dominant protocol in all major European and most Asian markets.

The advantages of using FIX for the Consolidated Audit Trail System are:

A. Lower Costs to the Industry

Buy-side, sell-side and exchanges already communicate and store messages using FIX. Costs to develop systems to store and communicate trading information to the SEC or Self-Regulatory Organizations (SROs) would be lower using FIX as the data already exists in a suitable format today.

B. Less Error and Easier Auditing

As records are currently kept using the FIX Protocol, if any other protocol is used a translation is required to transform data into a different protocol. This introduces error and offers the potential for manipulation of the data. Using FIX means the SEC is looking at the original format of the data.

C. Real-Time

All FIX messages are generated in real time for trading. The SEC could more easily attain a real time reporting system by using FIX.

D. Ability to Coordinate Across Derivative Markets and Globally

Market events such as the May 6 flash crash require looking at not just historical equity data, but also data from equity derivative markets and international markets. As the FIX Protocol is dominant in other asset classes and derivative markets, including equity index futures, equity options and global markets, regulators can more easily gain a broader
view.