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Articles Q2 2022

Why FIX Trading Community is Integral to Transparent Global Markets

By Maria Netley, EMEA Regional Director, FIX Trading Community

Maria Netley, FIX

Without the FIX Trading Community, the ability for the global regulatory community to provide transparent markets would be close to impossible. It seems like quite a broad statement for the community to be making, so let’s look at exactly what we mean by this. 

Almost without exception regulators strive for better transparency in ‘the markets’, but what exactly does that mean? Transparency is the way by which all users of markets, whether amateur individuals, professional investors or large corporations, are able to see clearly exactly what is happening in our markets. Markets, however, are not simple and one trade between two participants will be nothing like the transaction between another two. The most important part of transparency is understanding the true circumstances of each individual trade – without this information the data is rendered meaningless.

Additionally, each region, country, and jurisdiction has different rules. The rules are often high level, and then they are implemented in slightly different ways – the result of this is that users start to lack trust in the data and they find it hard to understand or to refute what they are seeing in the markets. Only when the data is clear and unambiguous can regulators fulfil their obligation to monitor and police safe markets.

So exactly what is needed to ensure that markets are transparent and clear, for both market users and those charged with making them safe?

Global financial markets need clear standards and clear guidelines. They need frequent clarifications (not as a way of fixing legislative failures); quality data; constant challenge; and flexibility for improvement change. Finally, markets need the ability to appropriately censure those who do not follow the letter, or the spirit, of the rules.

So where does FIX fit in? Market participants need to be able to create value and drive revenue through the work that they do, but human nature will tend to lead to firms skewing their views to suit their own personal needs and motivations. This means regulators walk a tightrope daily in trying to understand the minutiae of market subtleties without necessarily getting the full picture. All market participants are represented by an army of industry organisation (as they should) to advocate on their behalf and to protect their business models, and these groups will have as many differences of opinion as there are business models to protect. 

The FIX Trading Community is a unique organisation that represents the provision of data for all market constituencies, and is able to step away from any discussion that strays from the end goal of clear standards.

The organisation is exceptionally positioned to bring together market participants to provide those standards and guidelines in a professional environment where members are constantly reminded to ‘leave their corporates hats at the door’. It may seem that in a dog-eat-dog corporate world it is hard to understand how firms do this, but at the end of the day there is a clear commercial reason for firms to work together. Regulation is inevitable like death and taxes and keeping the cost of compliance as low as possible only comes with the use of good, well-defined standards.

The FIX Trading Community has been in existence for close to 30 years (the first FIX committee was formed in 1994), and the organization continues to work constantly to improve the efficiency, lower the cost of operations and reduce the operational risk of the markets.

In more recent years the focus of the community has been to maintain the pace of change and to ensure the FIX Protocol remains relevant thorough extensions, guidance and recommended practices.

The FIX Trading Community working with its members can provide those standards and guidelines. They are in the centre position to make sense of any proposals, to convey to the markets a detailed understanding of the business flows and where the ‘gotchas’ can be found, and to guide rule makers to regulatory standards that make sense and avoid unintended consequences. Also at the core of good standards are the understanding of what constitutes good data and what is bad data, and how bad data can be cleaned up and extinguished. 

The FIX Trading Community does its work well, but it can only do it well with the support of our members. This includes financial support to enable the mechanics of the process, as well as support from firms to allow their teams the space to be involved and to provide the crucial input across the industry spectrum (buy side, sell side, vendors,  venues – everyone has a part to play). 

However, we can’t do it all. The FIX Trading Community cannot police the markets – that must remain the responsibility of our regulators, but we can continue to provide advice as to the data issues that may arise and what can be done to resolve them for the sake of good transparency.

Be part of the solution and get involved.

FIX TRADING COMMUNITY IS CURRENTLY INVOLVED IN A NUMBER OF KEY INITIATIVES, INCLUDING:

Execution Transparency:

As regulations and buy side / sell side sophistication evolves, the desire for more detailed transactional data increases. It is important for the FIX Protocol to continue to evolve to ensure that new data becomes available in a common and unambiguous way. The extension and introduction of new fields and values in this area has supported this evolution. However, even after extensions to the Protocol, regular reviews of implementation across the industry allow the working groups to provide further guidance where necessary.

Transaction Cost Analysis (TCA):

This work has enabled the creation of an industry-wide terminology, guidelines and best practices that allow for a more consistent evaluation of the investment process and costs of trading.

Post-trade Transparency and European Consolidated Tape:

We have continued to develop the MMT (Market Model Typology) standard for trade categorisation, this now being adopted by all major European equities trading venues and APAs. In addition, the FIX Protocol is used for the majority of APA trade reporting across Europe. We are extending both MMT and the FIX Protocol to support ESMA and FCA changes to post-trade transparency rules in Europe and the UK. We are also writing definitions of addressable liquidity and refining our guidance on liquidity categorisation.