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Articles Q1 2022

Standards Don’t Come Naturally

By Lee Saba, CTO & Head of Market Structure, Rialto Markets, and Global Co-Chair, FIX Trading Community; and Hanno Klein, Technical Director, FIX Trading Community

Welcome to the standards world – seen and unseen everywhere! 

Lee Saba

The telephone was a great invention! You can call people regardless of the phone company they use as their service provider. Email was a great invention too. You can send and receive emails between different domains, i.e. you do not have to have the same email provider. In each case, the use of “interoperability mechanisms,” or “standards,” is the key. 

In the case of FIX, this can translate to the FIX session layer – traditionally connecting two counterparties to enable the exchange of application messages. In other words, FIX is the “plumbing”. 

It’s tough to maintain high standards

Unfortunately, universal standards do not come naturally. Just look at the landscape for messenger services today, where interoperability is absolutely not the case. It is impossible to have a ‘chat’ if you and your friends are not using the same app from a specific provider (e.g., WhatsApp, Facebook Messenger, Signal, Telegram, Skype, Slack, to name but a few …). The same goes for video conferencing – Zoom, WebEx, Teams, WhatsApp, Skype, Facetime, etc. Just imagine needing to have multiple email addresses in order to just exchange mails with one another. Even worse, how about having to have ten different SIM cards just so that you can call all your friends. Clearly, the app world still has a long way to go to standardize connectivity and make apps interoperable. 

Hanno Klein

In the institutional trading arena, the main value of FIX has evolved from a focus on the session layer, to the FIX Protocol (a.k.a application layer), i.e. the payload sent/received to express business information, and not the plumbing. The session layer is of less relevance now, but it was needed when it was only about messaging between two IP addresses over TCP/IP. FIX also added a high-performance version (FIXP) for the same problem. Nowadays, FIX focuses on standardizing the business information ‘payloads’, which are independent of the transport mechanisms being used. 

Building the future

The story of FIX’s success in standardising the flow of business information and the immeasurable benefits the standard has had for past and present institutional trading participants around the globe (whether buy side, sell side, exchange, service vendor, and not forgetting regulators) is well known. It shouldn’t be taken for granted. 

Why are standards so hard to achieve?

  1. We all have vested interests (whether we care to admit it or not), and firms also have commercial pressure to roll out products or solutions. In this context, technology is increasingly offered by providers as a service, which makes adoption and integration for clients far more seamless. However, without standardisation around the associated APIs, custom development is generally required for each specific client. That means a lot of time, and money.
  2. Pressures around expediency, project deadlines and “not benefiting this year’s bottom line” mostly outweigh the arguments for “doing it properly and doing it once,” alongside the notion of saving time and money for yourself and clients in the longer run.
  3. No one said agreeing was easy. There are no short cuts to achieving consensus, which requires drive and ambition to improve the trading processes and systems. The creation and implementation of standards that benefit the industry, requires commitment and work at the industry (read FIX) committee and working group level.

In the increasingly noisy arena of emerging technologies and their associated capabilities, the FIX Protocol is as relevant today as it was at the start of electronic trading, and more to the point, has ample room to grow – especially in areas such as digital assets. FIX rides above all networks (or blockchains), and therefore is the glue that allows dealers, asset managers and exchanges to communicate trade information seamlessly while leveraging existing in-house infrastructure. As we continue to move into a more digitized age, at the simplest (and most efficient) level, when a transaction must be written to a main database (i.e. blockchain), the entity will do so in the same or similar manner as they do today. 

As an example, if a global broker were to access a global crypto exchange today, the broker would establish a FIX session to deliver orders and receive executions. The exchange would do one of two things:

  1. Deliver the digital assets to the corresponding blockchain and the broker’s address/wallet of the purchased asset; or 
  2. Make a book entry in their internal database that the particular broker has a position regarding the recently acquired asset. The broker can then request the asset be delivered when they or their clients need it. 

Basically, they are not trading “on-chain” for most transactions. This is mainly due to gas network fees, or transaction validation fees, to write into the blockchain. 

All that said, FIX doesn’t care what chain you’re transacting on – like it doesn’t care if you use Oracle or Sybase. Hence, FIX will be a major need for trade communication in this new ecosystem. 

Through the global network of committees and working groups (each being industry driven for a specific outcome), the FIX Trading Community straddles the existing (and future) world of institutional trading. Fit for purpose, on purpose. •