Confidently Stepping Into 2011
2010, what a year for FPL! At this time of year, businesses throughout our industry are reviewing the achievements of the past 12 months and setting in place targets for the year ahead. As I started to review what FPL had achieved over this period, I realised just how much has been accomplished!
FPL started 2010 with just under 200 members, a number which recently soared to more than 250 firms from across the global trading community, representing an increase of more than 25%! This rate of growth clearly demonstrates the significant value that FPL membership continues to deliver to its participants. Continual expansion of the FPL membership is important to FPL because this community of firms is really shaping the future of electronic trading as new members bring fresh thoughts and perspectives to the decision making process. Moreover, member firms provide important funding that ensures FPL can continue to maintain, develop and promote the FIX Protocol family of standards to ensure they evolve to meet the business needs of the trading community.
Throughout 2010, the FPL leadership has worked hard to meet and exceed the expectations of its membership and the organisation plans to ensure that effectively addressing member needs continues to drive the FPL agenda in 2011 and beyond. Here are some highlights explaining how this is being achieved.
Technical Developments
Delivering technical standards that support the evolving business needs of FPL member firms is central to the organisation’s goals. Over the past 12 months, FPL has worked hard to continue to expand the functionality offered by the FIX Protocol family of standards. In January, FPL held the initial meeting of the FIX Interparty Latency (FIXIPL) Working Group, which was formed to support the financial services industry as it continues on its quest to achieve ever decreasing latency rates. This group attracted significant interest from the membership as it quickly became one of the largest FPL groups by number of participants.
FPL developed this group as many firms face issues as they seek to assemble an end- to- end picture of the journey of a trade across multiple organisations and through the many systems that this entails. It is often the case that the information required is stored in different formats and compiled on a different basis from system to system, presenting challenges for latency measurement. The FIXIPL Working Group seeks to address this issue by developing a standard that will allow the easy assembly of this information on a consistent basis across multiple organisations so that firms can develop a better understanding of where latency hot spots exist and how they can address them. This group has worked diligently on this standard throughout 2010 and will continue efforts into the new year.
In March, FPL proudly launched a new standards-based messaging language for algorithmic trading strategies, the FIX algorithmic trading definition language (FIXatdlSM) version 1.1. This new standard enables algorithmic strategy providers to release their specifications in the industry standard, computer readable, XML format as opposed to the traditional method of supplying detailed documentation that then requires considerable coding and testing. By using FIXatdl, firms can significantly decrease the time-to-market for new and updated trading strategies, offering considerable efficiency savings and profound improvements to the way that algorithmic trading will evolve moving forward.
In November, FPL announced the formation of a new High Frequency Trading Working Group to develop a highly efficient and very concise transport protocol for electronic trading, which can be optimised to support very high frequency trading, but can also scale up to support even the most complex instructions. It will not change the semantics of FIX, but remove the need to use, what can prove to be, costly proprietary protocols to achieve the highest levels of performance. The Working Group’s initial meeting was held in December 2010 and we look forward to seeing further activity from this group in 2011.
As market requirements evolve, FPL is constantly seeking to explore new ways in which it can support the industry. A prime example of this is the additional support for a variety of different business processes across the asset classes and trade life-cycle that has been added throughout 2010 to the protocol and FPL’s plans to add significantly more functionality in 2011.
Regulation
The regulatory community is continuing to express significant interest in the benefits offered by the FIX Protocol and a prime example of this is the decision taken earlier this year by the Australian Securities & Investments Commission (ASIC) to adopt the FIX Protocol messaging standard for the reporting of short positions. This move follows the 2009 announcement by the Investment Industry Regulatory Organization of Canada (IIROC) advising of the regulator’s plans to adopt FIX for market surveillance and transaction reporting. FIX is the language of the world’s financial markets, having achieved mass adoption across the global financial services industry, and interest from regulators in the protocol is very encouraging. By choosing FIX, regulators enable many firms to leverage their existing investments in technology across additional business processes, generating the potential for significant cost savings and further efficiency gains. To support this effort from a US perspective, in 2010, FPL and the Financial Information Forum (FIF) created a joint Regulatory Reporting Working Group to proactively address transparency initiatives proposed by the likes of the SEC and FINRA. Through this collaboration the group seeks to promote standardisation in trade reporting and help decrease industry-wide costs by developing common approaches. Current areas of focus for this group include short sale implementation, trade reporting, sponsored access and market structure. As an example, FPL submitted a response to the SEC’s Consolidated Audit Trail(CAT) proposal. The main purpose of this submission was to strongly suggest that the format of the reporting data for CAT should be based on the FIX Protocol.
From a European perspective, FPL is being increasingly approached to comment on regulatory consultations. To ensure that these responses are submitted in a manner that reflects the broad interests of its membership, in August the FPL EMEA Regulatory Subcommittee was formed. In November, through consultation with this group, FPL submitted a proposal to CESR (the Committee of European Securities Regulators) for an industry led solution for the establishment of a Consolidated Tape Delivery Authority (CTDA) to deliver a European Consolidated Tape. To date, the industry has already created a number of consolidated tapes, but the absence of any universal standard has inhibited widespread uptake. This submission proposed that the use of a single standard for the content of a consolidated tape would prove hugely beneficial to market participants.
Additionally, FPL member firms in Europe were also invited to join the Markets in Financial Instruments Directive (MiFID) Forum (previously called the MiFID Joint Working Group which was re-launched in 2010 in response to the European Union’s review of the financial markets. This joint industry initiative is supported through the efforts of FPL, the Financial Information Services Division of the SIIA (FISD), the International Securities Association for Institutional Trade Communication (ISITC) Europe and the Transaction Workflow Innovation Standards Team (TWIST).
From an Asian perspective, in addition to the work with ASIC, the FPL Asia Pacific Exchanges and Regulator Subcommittee continues to reach out to regulators across this diverse region, in order to highlight the benefits that standardisation and use of the FIX Protocol presents. With no pan- Asian organisation representing the perspectives of the institutional trading community to the various regulators around the region, FPL is increasingly positioning itself to support dialogue and help consolidate the perspectives of the region’s institutional trading community.
Protecting Member Firm FIX Investments
FPL actively engages within international standards initiatives that seek to both harmonise and promote consistency throughout financial markets for the adoption of free and open industry standards. Throughout 2010, FPL has worked closely with other standards bodies to publish an updated Investment Roadmap. The Investment Roadmap, which was originally introduced in 2008, seeks to provide market participants and regulators with consistent direction when using financial services messaging standards by visually mapping protocols to their appropriate business processes across asset classes. The roadmap lays the groundwork for moving towards one common business model, ISO 20022, while allowing the respective standards organisations to continue maintaining their existing protocols – FIX, ISO, FpML and XBRL.
This collaboration seeks to improve interoperability and generate cost savings as the creation and maintenance of multiple standards within the same area of the transaction lifecycle is avoided. In addition to providing the industry with a view of the ways in which existing messaging standards are currently utilised, the Investment Roadmap also defines an agreed path for future initiatives by identifying gaps as well as areas of overlap. Participation in this initiative enables FPL to continue to protect member firm FIX investments and the organisation will continue to work closely with other standards bodies in 2011 to continue this effort.
Promotion of the standard
Promoting increased use and adoption of the FIX Protocol is key to the standard’s future success and to enable market participants to further understand the advantages of adoption, in January 2010, FPL released a study entitled ‘The Benefits of the FIX Protocol’. This study was produced by Oxera, one of Europe’s leading independent economic consultancies. The study explores the benefits that flow from the use of FIX in capital markets and amongst other findings, identifies the significant cost savings and the longer-term value that greater use of the protocol could deliver in terms of generating increased market efficiencies. The findings of this study has helped FPL to really solidify the ways in which FIX underpins the efficiencies and cost savings enjoyed by many of the mature financial markets across the world and to explain how it can be used by emerging regions to further enable their future development.
To support FPL’s efforts as it continues to promote the standard, the organisation holds educationally focused events in many different markets globally, that also provide significant networking opportunities. In 2010, FPL held 17 events, including the largest event ever organised by FPL, the EMEA Trading Conference in London, which completely sold out of all available delegate places, attracting more than 720 delegates on the event day. FPL’s event calendar will expand further in 2011 as the organisation explores new markets with events planned for Russia, Dubai, Frankfurt and Madrid, in addition to building upon work already in progress in many other regions globally. If you would like to understand which events will feature in the 2011 event calendar please visit www.fixprotocol.org/events
Understanding Buy-Side Needs
As the financial markets continue to evolve, the requirements of the buyside trader are changing. To enable FPL to develop a stronger understanding of the needs of this industry sector earlier this year buy-side focused working groups were created in both the Americas and European regions, complementing the existing group in Asia Pacific. These groups will continue to provide support to this industry sector in the year to come.
Raising Awareness of Risk Management
A U.S. based Risk Management Committee has recently been formed to raise awareness of the implications of electronic trading on risk management. The group currently consists of representatives from the broker dealer community and during an initial meeting, the subject of technology related internal risk controls was prioritised as an important area of focus. It was agreed that although firms conduct their own internal risk checks, it would be beneficial to industry participants to have a base level of standardisation across the industry, and that this could also assist regulators. This group is currently creating a business practices document focused on equity risk controls.
New and Emerging Markets
During 2010, FPL continued to work closely with market participants in multiple new and emerging markets globally to support growing interest in using the FIX Protocol to facilitate evolving electronic trading requirements. A prime example of this is the work FPL has conducted in the Central and South American markets. By working closely with the local FPL Latin America Subcommittee, FPL was able to hold a very successful third event in Sao Paulo, this conference attracted more than 335 delegates providing important business and technical electronic trading information, FPL also held a one day event in Mexico City that generated significant local interest and FPL hopes to expand support for both of these markets in 2011. Support for FIX in this region is growing and a number of exchanges have now adopted the protocol in markets including Columbia, Chile and Peru.
In addition to work in the Americas region, FPL also held an event in South Africa and created a FPL Middle East Working Group to help the organisation gain a stronger understanding of the needs of this region. This group held its first meeting in December 2010 and in 2011 will be organising a briefing focused on addressing local FIX and electronic trading educational requirements. In 2011, FPL will also be expanding its reach across the European continent into Eastern Europe as it looks to formulate local initiatives that encourage the development of FIX in these markets.
From an Asia Pacific perspective, further work also took place as working groups in Australia and Singapore continued to support local requirements.
FPL has taken giant steps forward in 2010 as it has sought to meet the ever evolving needs of the trading community. This has been possible through the support of the FPL membership and in 2011 FPL promises to continue to work hard to minimise the costs of trading through even greater standardisation.
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