Normally a front-office vendor, Fidessa has today officially embraced the FIX protocol for its Post-trade Confirmation Hub offerings, which facilitate FIX-based trade affirmations and confirmations between buy-side and sell-side firms. This follows the work of the FIX Protocol Ltd. to push the electronic trading standard beyond the front office. Perhaps Fidessa’s FIX move is a harbinger of battles to come.
Citing the need to bring down operational costs, Fidessa is making available global, FIX-based connectivity that will allow financial services firms to send and receive allocation and confirmation instructions minus the need for proprietary alternatives that incur per message charges. Fidessa also surveyed the needs of its buy-side clients.
“What was interesting for us is that we put together a focus group of our key buy-side customers from a very early stage,” says Steve Grob, director of group strategy at Fidessa. “This enabled us to understand the dynamics of the problem in a real-world sense and validate our approach incrementally. One of our key findings was the fact that by using FIX we could dumb down the whole matching process so that bilateral confirmation processing became much simpler.”
In addition, David Pearson, a business consultant and head of post-trade services at Fidessa, has been working with FPL as co-chair of the FPL EMEA Post-trade Working Group. Among his key assignments has been to embed the FIX standard into its post-trade workflow. “Our approach has been to focus on both the messaging standards that the industry wants to adopt and the business process for the operational users,” Pearson says in a statement. “By standardizing the workflow for all our buy- and sell-side customers we are able to provide a straight-forward and effective middle office environment. In addition, firms can leverage the existing FIX infrastructure they already have in place for routing order flow.”
Leveraging current infrastructures will be possible for Fidessa customers if they upgrade.
“Part of the rationale behind this project is that participant firms can leverage their existing FIX infrastructure to route order flow,” Grob says. “Sell-side firms using Fidessa’s middle-office processing module can upgrade to become part of the Fidessa post trade FIX community.”
Overall, most buy- and sell-side firms should find it relatively easy to extend their FIX-based infrastructures.
A year ago, FTF News spoke with Brian Lees, an assistant vice president, and software development manager for The Capital Group Companies, about the FPL’s guidelines for post-trade processes; Lees is an active participant in the FIX Protocol Buy-side Working Group and heads the FPL Execution Venue Working Group. He noted that most firms with FIX front-office infrastructures will have to do “some plumbing work” to route allocations to FIX engines infrastructures that transmit FIX messages.
“I think it varies from firm to firm,” Lees said. “In general, we expect it to be relatively low cost because many firms already have a FIX infrastructure out there and it’s just a matter of how to route it into that infrastructure and send it out, and then get the affirmation messages back.” He also urged buy-side players to work with their brokers to bring FIX to post-trade processes.
The buy-side to sell-side interaction will be key to FIX’s future in post-trade processes, which is why Fidessa is making the new service available through its centralized hub, which uses the vendor’s incumbent post-trade workflow. More than 300 sell-side firms globally have farmed out their services to the hub. Overall, Fidessa, which touts a community of 3,600 buy-side firms and 775 brokerages, is also making it clear that there are battles ahead.
“For some time, the industry has been looking at post-trade as a key battleground in the war on daily operating costs,” according to Grob in an official statement. “What we found was that, whilst many of the processes are hugely important, there is no competitive edge in one proprietary approach over any other. Recent fragmentation into competing alternatives has simply made the whole process even more inefficient for market participants of all types.”
One of obvious combatants in the battles to come would be post-trade services provider Omgeo, which was unable to respond to requests for comment in time for this posting.
Fidessa is stressing that if its customers embrace FIX-based post-trade services they can start cutting back on proprietary alternatives charged on a per message basis, Grob says, adding that Fidessa uses flat fees. “In addition, participating firms can repurpose their existing investment in FIX infrastructure from pure order routing to post trade as well,” he says. “Ultimately, this enables allocation information to be transmitted on a much timelier basis because information can be persisted from the front office all the way through to back office. This minimizes errors because there is no re-keying of data and it reduces the time it takes to confirm trades.”
The next big factor for FIX in the post-trade world hinges on where the major players stand. For now, top buy-side player American Century Investments has already joined the vendor’s FIX initiative.
A longtime FIX proponent and activist, Scott Atwell, manager of FIX trading and connectivity at American Century Investments, says in prepared statement that the firm has asked its brokers—current customers of Fidessa’s post-trade solutions—to support FIX for allocation and confirmation messaging.
“We have been working closely with Fidessa, leveraging their open hub, to implement FIX as a post-trade standard. The benefits in using FIX include efficiency gains, improved straight-through processing and quicker identification of issues, all of which provide significant risk reduction and cost savings,” Atwell says in the statement.
While addressing some major concerns, the Fidessa news also spurs new questions.
In particular, if Fidessa can make the jump into post-trade processes, why can’t other front office vendors also get into the fray? Does this necessarily mean new competition for incumbent post-trade providers? Would the incumbent players be able to embrace FIX without gutting their business models?
Lastly, does extending FIX to the middle and back offices, constitute the spark that might finally get firms to the finish line on straight through processing, which has been a dream deferred for too long?
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