On the Workbench: Further Developing FIX for Equities Allocations

Who will benefit most from the implementation of FIX allocations?
FIX allocations provide the potential for significant benefits to both buy and sell-side firms – but the ‘hows’ (‘how soon?’, ‘how much?’ and ‘how can I know for sure?’) differ dramatically across these segments.
Buy-side firms have the most immediate opportunity for FIX allocations. This is because most of their brokers support them in some form today and, as a whole, brokers have been responsive when clients want to use them. Because of this, buy-sides can integrate allocations into their FIX-based order process – providing an end-to-end trading solution that spans all brokers, asset classes and regions. By doing this, they can reduce costs and risks by better integrating their front and middle offices and gaining the flexibility they need to automate even the more challenging asset classes, such as futures, options and FX.
FIX allocations provide the most significant potential for cost and risk reduction to sell-side firms, who carry the largest share of post-trade costs and risks. However, until allocations – like orders – are widely adopted in a standard way across their clients, their benefits are diluted by the inefficiency of maintaining a fragmented set of post-trade processes. Because they are dependent on adoption and standardization across their clients, these benefits are longer term and totally dependent on their client’s commitment level to FIX.
How can greater uniformity of allocations messaging be encouraged and how will that improve straight through processing?
Encouraging uniformity of FIX allocations starts with the buy-side. They need to  prioritize it to the point where they actively participate in standards definition and then push their vendors, their trading partners and, often, their own internal functions to implement and comply. The FPL Americas Buy-Side Working Group is off to a great start driving the community in this direction.
Achieving uniformity requires establishing an equally strong, uncompromising commitment from all segments of the market, including vendors, that needs to be sustained for multiple years. Uniformity will not be the result of any single version or other ‘big bang, type transition. Instead it will be the result of a number of small steps – often taken one firm at a time.
Uniformity provides a consistent interpretation of FIX allocations messages across all trading partners who support FIX. With uniformity, firms of all types reduce the cost and risk associated with maintaining non-standard ‘work-around’ logic in their applications that process FIX allocations.
Further, uniformity begets widespread adoption – and vice versa. The sum of the two, uniformity plus widespread adoption, is the ‘nirvana’ that motivates FIX post-trade advocates across the industry.
How can a smoother allocations post-trade process lower total trading costs?
Moving traditional middle office functions, such as allocations, closer to the point of  execution provides an opportunity to reduce total trading costs by streamlining front and middle office processes and to mitigate costs associated with trade errors. In addition, this will facilitate automating more manual asset classes, particularly futures, options and FX, as well as reducing third party technology and service costs.
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Who will benefit most from the implementation of FIX allocations?
Customers are increasingly looking for global middle office solutions which are more tightly coupled to their  front office solution.With FIX already dominant in  the front office as a means of electronically supporting order flows, extending this to the allocations workflow is the logical next step. As a result, both the sell-side and buy-side can benefit from improved straight-through processing and confirmation timings through leveraging their existing FIX connectivity.
How can greater uniformity of allocations messaging be encouraged and how will that improve straight through processing?
Whilst message uniformity is the ideal, without a centralised allocation matching service, FIX allocation messages will inevitably diverge across middle office solutions. This is well known in the front office, highlighting the importance of a normalised connectivity network and providing FIX solutions which abstract customers away from this divergence. This means that users receive and deliver uniform and expected allocation message flows which enable them to quickly on-board new clients and benefit from improved straight-through processing and lower exception handling.
How can a smoother allocations post-trade process lower total trading costs?
An efficient middle office, with high rates of straight through processing and confirmation timelines, will inevitably reduce costs through lower manual intervention and improved settlement. Competitive global middle office solutions must allow customers to bring their front and middle office solutions closer together, so that they can leverage the benefits of a highly automated workflow and connect to ETC services, such as Omgeo CTM and FIX allocations.