A Vision for FIX – Can a FIX network be the solution to seamless trading across multiple markets?

By Tom Brown
Imagine a seamless flow from the opportunity through the trade, the fill, matching, settlement and confirmation. Now imagine this across multi-assets and multimarkets. RBC Asset Management’s Tom Brown thinks this reality is closer than we know using a flexible combination of OMS, FIX and EMS.
Imagine you are on the trade support desk, within your trade room, of a buy-side firm monitoring order flow. One of your Portfolio Managers has seen an opportunity flash on his desktop via an instant message from the head equity trader. He determines a buy of 50,000 shares should be executed for five portfolios. The Portfolio Manager enters a buy order in the order management system and sends it to the trade desk with the click of an icon. The equity trader picks the order and sends it to broker “A” as he was making the market.
The order comes back as filled to the trade desk and populates in the blotter. The order moves to ready status as a fully filled order, allocates across five portfolios and moves from the trader blotter to the trade support blotter. You now pick up the order and review details of the trade for accuracy. Having completed the review, you select the order and hit the icon for “prep post-trade” which applies the standard settlement instructions (SSI) to the trade. Having attached the SSI’s to the trade you hit the “send post-trade” icon and send the allocations and details of the order to the broker’s back office.
Your counterpart at the dealer will pick up the allocation and detail report. After reviewing for accuracy and confirming data points are complete, he sends back an “acknowledged” message that hits your blotter and changes the status of the trade from ready to matched/affirmed.
With the trade complete, you grab the finished trade and hit the send to accounting button, that sends the trade downstream. The trade flows to your book of records as a completed trade. It will also flow, at the same time, as a matched trade to your custodian who will pick up your trade across the five portfolios and process them as matched trades routing to your custodial accounts and through another stream funnel to the depository to complete the full trade cycle.
Imagine all those touches and the number of people involved, and then realize the whole cycle took less then five minutes to complete.
But why stop here? Why not the same functionality for the money market, fixed income, foreign exchange and derivative desks? A step further: all markets and all asset classes, globally. How do we proceed with flow and process?
Institutional Trading
A fully functional order management system (OMS) is essential to such a global, multi-asset, vision. This does not, however, preclude other levels of flow being developed, but you may risk gaps in compliance checks, limitations to the type of messaging or other aspects of the cycle. Let us review both scenarios.
We determined through discussions with our Institutional OMS vendor, Charles River Investment Management System (Charles River IMS), that for our purposes of developing “one stop processing”, fully integrating the application with access to the appropriate modules would move us towards this goal. We already had some of the tools built during our initial rollout of the application. For example: Pre-trade compliance and segregation of duties for user functionality allows an order to have breaks during flow that enable the various participants to perform their tasks in the cycle.
Portfolio Managers are able to trade a single name through their blotter or pass multiple orders through model changes per bucket. The biggest advantage is the ability to send program trades covering 100’s of orders from the managers workbench with a few key strokes, passing through compliance and conducting mandate checks verifying trades are accurate within seconds.
Once the orders hit the trade desk, the same ability allows our traders to grab one order or a whole program of orders and send them to “The Street” within seconds, to one or many dealers via the Charles River FIX network. This allows the desk extra time to work more difficult orders or simply to get orders to market in an efficient, timely manner for our dealers to vet.
Next was incorporating the right modules that would interface with the blotter builds we completed for trade support and back office functionality. Allocation and trade match modules added the ability to accept executions and breakdown the trade details in a manner that made the information usable for back office requirements, again using the FIX network. Since we trade at the bulk level, yet allocate at the portfolio level, this additional flexibility allows us to match with bulk numbers and also break out the order at the detail level for the allocation reporting and matching.
Integrating the back office
Once the order hits ‘ready’ status, trade support will pick an order or, multiple orders, and apply the SSI’s. This is the final step in the “prep for back office” process and performed by clicking on an icon. This includes trade support doing a review of the details of the trade for completeness. Once finalized, trade support will send the allocations and trade details to the broker at both the bulk and allocation level by clicking on the “send to posttrade” icon flowing across the FIX network. Depending on the interface, the broker will see the allocation and details in real-time and can either acknowledge or reject the instructions. Ideally, the broker will be able to offer the discrepancy and repair data at this time for our desk to accept (repairing the order in our OMS in an automated fashion), or reject which will push us to review investigate and restart the matching process.

Flexibility with FIX and OMS
All of the above is completed using the FIX network and our OMS platform, but it does not limit us to this single means of processing back office trades or matching trades. Where there are flow limitations to any of our counterparties we use the flexibility provided to us by our OMS to distribute key data points, along with the allocations, through an additional module. The trade gateway module allows us to develop flow through FTP (file transfer process), secure e-mail or SWIFT type formatting to our counterparts or custodians, where required and where the FIX network doesn’t interface. This includes applying SSI’s and other information relevant to matching and settlement of trades allowing us to maintain our post trade space in a consistent manner across several options.
Retail trading
For the retail desk, we were presented with a different structure that would prevent us from mirroring the institutional desk experience and use of the OMS proposition as outlined above. Our challenges were unique as orders were sent from various platforms including a branch network, individual investment counsellors and through the centrally managed model team. This order flow included weekly trade cycles totalling hundreds to thousands of orders being created at one time. We had the added requirement to be able to send programs broken out by various asset types and whether the orders were buys or sells, to a distribution of several dealers to ensure full broker coverage.
With these challenges and before we could build our post-execution and back office requirements we needed to find a suitable electronic trading platform. If we could not execute using a network this would limit the overall process and our ability to clear discrepancies and send matched instructions downstream.
After several attempts with various vendors, our partners at Investment Technology Group, Inc (ITG) came back with a solution reflecting a buy-in of our vision. We worked closely to develop a process using their EMS (Electronic Management System) with a flow that created a hybrid OMS/EMS application.
The completed flow begins with the “field” entering orders to a platform that allows trade support to process the administration of orders. Merging of like assets and settlement location, by trade support, reduces the orders to a more manageable number and allows the opportunity for better execution of trades on behalf of clients. These orders are then entered by trade support to the ITG-Triton platform where the trade desk can pick their orders and apply them to their basket for vetting before extracting orders to send to the street for execution via ITGNet (Investment Technology Group, Inc’s FIX network). Once the execution comes back into the platform as a filled order, the trader places the completed orders into the trade support basket to allow for back office processing.
The mid-term intent within the retail space is to build out a matching utility that allows transmission of data and allocations to the dealers back office. Following the same logic as the institutional desk, the dealer would then accept or reject the details and allocations, or offer repair suggestions via messaging which would be dependant on their version and interfaces.
Why FIX?
For our purposes, the FIX network was the most adaptable, automated electronic platform: from execution of orders across multiple accounts through multiple brokers, to back office interfaces for repair and affirmation of trades with counterparts, to future reporting at the custodians with matched status that could flow through to the depositories for real time settlement of trades. The ability for FIX to adapt to our requirements, as well as having the flexibility to interface with several dealer applications, allows for brokers, and ultimately custodians, to share synergies without significant costs or time commitments in relative terms.
We began our institutional FIX build by moving to the Charles River Network and changing from “hub and spoke” to “pointto-point” connectivity. This allowed us to set up unique and personal experiences per broker, thus moving away from one hub for our whole broker network. The point to point flow provides data points with variances per broker session and provides levels of tolerance to manage relationships. Point-to-point can also “dummy down” per broker session, allowing a dealer using different versions of FIX to send us ack/knack messages while another dealer with a higher version of FIX can provide additional reporting through discrepancy and repair notifications. We also needed the flexibility required for fixed income, derivative and FX processing, which requires the more current FIX release in order to message.
The ability for the FIX network to interface with the OMS provides other significant advantages. Instantaneous order flow, recording order history for audit or being able to provide FIX messaging for TCA (Trade Cost Analysis) reporting of trades from inception to completion, can all be provided using the same experience and work effort, without having to process piecemeal from other applications.

We anticipate a similar FIX experience for the retail trading desk once the build has been completed. Although we are using ITGNet, the capabilities of this network are flexible enough to allow unique broker experiences per session and will have the same type of connectivity for execution and reporting. The front end will be slightly different due to the type of order flow, but the same from a FIX and back office perspective.
View from the brokers
Our partners within the broker community had to be considered during the vetting process to ensure buy-in regardless of the flow we decided to build out. At a time when project costs and resources are tight, having an application with the flexibility and scalability to grow as required or interface with existing vendor applications was essential. FIX met all of these needs.

Views from the custodians
After discussion with our custodial partners, it was clear that they are willing to join in building a more dynamic and realtime experience through an electronic flow. Although it may not be FIX delivering the data directly into their front end, the ability for FIX to interface with Swift or other delivery vehicles will be instrumental. Our mid-term objective would be to pass match status trades to the custodian and though these would not be able to settle without intervention, it would reduce the touches required by back offices, whether at the manager, dealer or custodian level. Ultimately and more long term, the intention would be to pass matched trades through to the custodian and to the local depository for real-time settlement.

Information relating to third-party vendors has been provided with the kind permission from Charles River Investment Management System and Investment Technology Group Inc.
The information in this report has been provided by RBC Asset Management Inc. for informational purposes only. RBC Asset Management Inc takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when provided. Due to the possibility of human and mechanical error as well as other factors, including but not limited to technical or other inaccuracies or typographical errors or omissions, RBC Asset Management Inc is not responsible for any errors or omissions contained herein. RBC Asset Management Inc reserves the right at any time and without notice to change or amend the information. This report may not be reproduced, distributed or published without the written consent of RBC Asset Management Inc. RBC Asset Management Inc. and Royal Bank of Canada are separate legal entities, which are affiliated.
©RBC Asset Management Inc. 2009