Internationalising China’s Trading Standards
By Mao Ting, Senior Manager, China Foreign Exchange Trade System, and Jim Northey, Co-Chair Global Technical Committee and Co-Chair High-Performance Working Group, FIX Trading Community.
CFETS is keen to work closely with the FIX organization and ISO TC68 to improve standardization in China’s domestic market and share its experiences with the world.
The China Foreign Exchange Trade System (CFETS), also known as the National Interbank Funding Center, was founded in 1994. CFETS adheres to the principles of “multiple technical approaches, varied trading mechanisms and integrated demands from multitiered markets,” and is committed to developing infrastructure and providing innovative products and mechanisms for the China interbank market. Its strategic goal is to become “a major global trading platform and pricing centre for renminbi (RMB) and related products.”
By applying advanced information technology, leased lines and the Internet, CFETS provides a range of services covering issuance, trading, information and post-trade activities for the RMB-denominated interest rate, the RMB exchange rate and related products in the cash and derivatives markets. Every business day, it publishes market benchmarks including the RMB central parity rate, the Shanghai interbank offered rate (Shibor), the loan prime rate (LPR), the CFETS RMB index series, the fixing repo rate, bond indices, yield curves, etc. By the end of July 2018, CFETS has over 23,000 market participants.
The total trading volume in the first half of 2018 reached RMB 557.5 trillion ($81.4 trillion)
History of IMIX
In 2004, CFETS started to work on the messages standards of the China inter-bank market, so as to enhance inter-system connectivity and improve message transmission efficiency. Three national industrial standards have been published so far, including “Interbank Market Metadata”, “Interbank Market Information Exchange Protocol (IMIX)” and “Interbank Market Data Interface”. These three standards jointly form the basis of the Unified Business Data Exchange Platform.
Ever since its release, IMIX Protocol has been widely used in China’s interbank market, covering pre-trade, trade, and post-trade processes. IMIX is used not only between interbank market participants and CFETS, but also between CFETS and other interbank infrastructures, such as Shanghai Clearing House, Shanghai Gold Exchange and China Central Depository & Clearing Corporation.
The IMIX protocol was based on FIX.4.4 firstly. CFETS extended more than 100 message types and 1000 filed tags to support the business in the China market. Until now, the most used protocol format is “Tag-Value”. In addition, IMIX protocol also supports Google Protocol Buffer and JSON format. CFETS, now a FIX Trading Community Global Member, is working on updating the IMIX to support FIX.5.0, SBE and the other FIX standards.
Standard usage in FX trading system
CFETS launched the new generation of its FX trading system, called the New Trading Platform (NTP), in February 2018. NTP supports FX spot, forwards and swap products and the Quote Driven Model (QDM) and Order Driven Model (ODM). CFETS adopted the IMIX protocol to build the interfaces of the system, including market maker interface and taker interface.
Taking request-for-quote (RFQ) as an example, the RFQ process is initiated by the member sending a quote request message (QuoteRequest). This contains specific products, trading volume, trading direction and expiration time. Each RFQ is identified by the QuoteReqID field, which will appear in all messages associated with the RFQ. After the system processing the quote request message, the member can receive a series of quote or quote revocation messages. Each quote message will overwrite the previous quote for the same QuoteReqID, LP and product. Members can submit a limit order with only one QuoteReqID, which will match all eligible orders in the RFQ pool.
Members can also initiate a new order for a specific offer, the order type is Previously Quoted (PQ), and the message contains the QuoteReqID and the QuoteID corresponding to the offer of the desired deal. At this time, the order will only match the quote.
Both limit orders and PQ orders are a combination of Full Amount. The member will then receive an ExecutionReport (ER) to accept or reject an order (if accepted, there will be a further ER indicating the deal or the order is revoked). The termination of the session will end all RFQs.
The following is a flowchart corresponding to RFQ in the case of quotation execution. The flowchart describes the process of how members and trading centers conduct transactions through IMIX messages.
Experience in submitting ISO 20022 messages CFETS also seeks to make China interbank market standards more internationalized, to keep in line with the internationalization of China’s financial markets and currency. One strategy is to get involved in the implementation of ISO 20022.
After gap analysis of the current ISO 20022 messages and IMIX messages, CFETS developed and submitted two business justifications for new messages in January 2014: “FX Post Trade Trade Capture” and “FX Post Trade Confirmation”. Message models and MDRs were submitted and approved in February 2016. The eight FX Post Trade Trade Capture and FX Post Trade Confirmation messages are designed to be implemented in the orange boxes shown below:
Ever since their release, these eight messages have promoted the rapid development of trade confirmation and straight through processing (STP) APIs of FX market in China.
ISO 20022 semantic models
The IMIX standard created by CFETS is based largely upon the FIX.4.4 standard. IMIX is represented by QuickFIX data dictionary definitions. One of the goals CFETS has set is to align its standard closer to the FIX standard and at the same time help to integrate the FIX standard within ISO TC68.
One of the long-standing objectives of the ISO and FIX Trading Community has been to integrate the business level semantics of the FIX protocol within the ISO 20022 standard. The ISO 20022 standard includes both a business domain model and a message model. The scope of ISO 20022 is all of financial services, including core banking, payments, credit card processing, custody, collateral, and settlement. The FIX standard is focused on pre-trade through post-trade/pre-settlement processing for financial instruments.
The financial instruments that are traded using the FIX protocol have expanded well beyond equities to include listed derivatives (futures and options), FX, FX swaps, fixed income, repos, interest rate swaps, and OTC-like derivatives traded on a venue. The FIX Community invested considerable effort in mapping FIX into the ISO 20022 model. However, the benefits of this major effort were elusive due to the limits of the modeling tools and the approach.
ISO TC68 initiated a working group to bring Web semantic technology into the ISO 20022 standard in 2014. The working group spent considerable time understanding semantic technology. The working group is now identified as ISO TC68/SC9/WG1 after a strategic realignment of the subcommittees (SC9/ WG1). SC9/WG1 has created a multistandard semantic portal that was derived by enriching the metamodel of ISO 20022. This new semantic model of messaging and the corresponding business model provides a common structure to represent multiple disparate standards.
Once in this standardized model format, automation tools and even semi-autonomous machine learning can be used to begin to provide convergence across the disparate standards that exist across the financial services industry. Two of the protocols that are now available via the multistandard semantic portal are the FIX Standard and IMIX from CFETS.
To the Web
CFETS, now a FIX Trading Community Global Member, is working with the FIX organization and with ISO to create international standards for the use of Web-based APIs. Many readers may have heard of RESTful APIs or REST-based APIs that use the HTTP internet protocol. Financial services, along with all other sectors, has been inundated with the API revolution across payments, card processing, and trading. The problem with REST is that it is a synchronous protocol that does not scale, nor does it lend itself to the high volume asynchronous messaging requirements of trading.
CFETS and FIX have both pioneered the development of asynchronous messaging using Websockets, which is an IETF standard that is now widely available.
It is hoped that this pioneering work will help inform and assist the ISO TC68/SC9/WG2 in addressing the need for an international standard for financial messaging over web technology.