With Paul Squires, Global Head of Trading And Securities Financing, AXA IM and Adam Conn, Head of Dealing, Baring Asset Management
The Investment Management Working Group (IMWG) had been set up to support other streams within the FIX Trading Community and to encourage buy-side involvement at the annual conference.
As a group, we identified three main topics: the automation of IPOs, application of FIX for fixed income and execution venue reporting for equities. (See article on page 4, Q1 2014, Issue 49). We decided to focus specifically on those topics knowing that discussions would quickly broaden out to other areas. We wanted to apply one of the central values of the FIX Trading Community – which is to be practical – and follow these discussions through until something was delivered.
What followed on the venue work was a series of best practice documents that were distributed to the FIX Trading Community. They focussed on three main FIX tags: 29, 30 and 851. A survey had been undertaken nearly two years previously with the aim of calculating the extent to which the buy-side was able to collect this information. Perhaps not surprisingly tag 30 was pretty commonly used, 29 was sporadically captured and 851 almost never captured.
More recently when Adam Conn and I have attended talks about ongoing FIX work, we have found that people now systematically capture 29 and 30. There is also more discussion around the implementation of 851 so awareness has certainly grown.
It is hard to represent the depth of the discussions behind such reports because, for example, there was much debate around the classification of FIX tag 29 (capacity) and the level of granularity we required; we had to be careful about legal definitions and regulatory implications. The papers we produced were always intended to be documents that the buy-side could use without needing to be hugely FIX-heavy technologically, so the buy-side could simply ask their algo brokers for the three FIX tags they needed.
Fixed income work
Project Neptune was in its very early stages, but it had caught our imagination as it was likely to be an interesting prospect for buy-side fixed income traders. What is interesting is not just the concept behind Neptune but that some of the areas being addressed are already more accessible than people realise. For example, indications of interest and streamed prices were already identified FIX tags but nobody seemed to know of anyone who was building the infrastructure at that point to receive the information via FIX tags.
Looking at the new fixed income trading world of multiple vendors, applications and platforms, it relies more than ever on the work already being done by the FIX Trading Community to standardise the way we receive information. However, we need the infrastructure to be able to do something with that information, and of course we need the banks to send us the information.
This process can be helped by use of a standardised document that is put in front of brokers and the IT team which simply lays out what is required. It is then up to the buy-side traders to pull the data out from that.
Fixed income is a really interesting area that has already seen a number of new market initiatives. It will continue to change significantly. Neptune has been an interesting exploration of buy-side/sell-side and vendor collaboration with ‘FIX-like’ values and concepts at its heart; those being standardisation of data and recommended practices with the objective of driving costs lower for everyone.
While Neptune continues to progress at a relatively slow pace, most people would say it has to happen that way because there are many other ongoing projects out there and buy-side time is stretched. With the Plato Partnership project, for example, the industry is trying to do something collaboratively, which means being very inclusive and allowing everyone to have their say. This does slow the pace of progression somewhat because everyone has a slightly different view on things, which makes consensus difficult to achieve.
In that respect, Neptune is doing all the right things and meeting people’s requirements in terms of the direction of travel. But certainly on the buy-side, we are characterised by being somewhat reluctant to jump in. In addition, the sell-side view might be that it threatens a business model that has been commercially very lucrative for them in the past . The transition is a difficult one and therefore technology spend is not necessarily at the top of people’s priority lists.
The IPO initiative that Adam has been running was also built on the best practices document drafted by the FIX group, and involved a number of constructive meetings between the buy-side, sell-side and vendors. The initiative has reached the point where the standards have been delivered and the automation process has been published. Now the focus is on promoting that work to increase awareness of the project and to try to mitigate the risk around transmitting orders electronically for primary deals.
However, there is still more to do. Having delivered best practices, we now need the vendors to come through and bridge the gap between applying those standards and giving everyone the software required to be able to do it.
There are more fixed income primary deals than there are equity IPOs, and whilst the published document was written primarily based on the equity process, we have been working with vendors with focus on both of those asset classes to make it more an ‘industry-wide’ initiative to ensure FIX Protocol works equally well for both. There is still development work for fixed income new issues and the working group is discussing this with the vendors.
Our discussions with the vendors have concentrated on explaining what we are looking for, describing our challenges and sharing the information we need to solve the problems. The recommended practice document has been prepared and now it can be used by anyone, FIX group or not, to engage with the vendors and decide if they want to take it forward. Crucially, this work, principally to mitigate risk in a currently manual work flow, aims to be equally applicable across all trading regions, be it the Americas, EMEA and Asia.
To my mind, this is exactly what the FIX Trading Community is there to do. We work on quite technical documents that become reference documents. It is not intended that we are a lobbying or promotional group or that we advocate anything in particular. As part of the IMWG we have undertaken the technical work required and delivered the resulting reference document.
It is clear that the industry is now far better placed because of the work that has been done on IPO initiatives, fixed income and execution venue reporting. I wouldn’t say that any of us are looking to identify our tangible contribution to any development but now our work is out there and it is available for people to engage with as they see fit. This makes it an appropriate time for us to hand over to the new co-chairs.
There may well be an ongoing reference back to the three topics with new questions, which is completely appropriate. However, it is time for us to find some new topics and challenges.
One aspect the outgoing leadership would like our group to move towards is the inclusion of more technical people. In the US, Brian Lees and Scott Atwell are becoming very much more involved, and I think they are exactly the type of people that the FIX group should be trying to engage. We need to work better to bridge the gap between the heads of dealing and the technologists because that’s where the potential becomes really powerful. This is more of an evolution than a completely new direction, but I would like to see the group move forward in that respect. As we hand over to our new leadership we look forward to remaining involved in the group and continue to deliver projects for the benefit of the industry and ultimately our clients.
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