Beyond providing communication between trading systems, FIX Protocol Ltd is increasingly taking a role as a voice for buy-side market participants says Edward Mangles, regional director, Asia Pacific, FIX Protocol Ltd (FPL).
“Many institutions can be much more comfortable providing information and feedback to regulators or exchanges through FPL than they would be directly,” he explains.
In the Asia Pacific region, FPL occupies a unique space, by virtue of its role in managing the protocol that connects market participants in key markets and across borders. The obvious benefit of using the FIX protocol is the standardisation of trading communication, which reduces cost while delivering more granular levels of data.
But as it seeks to accomplish its mission, FPL has grown into an organisation that also connects market participants – buy-side, sell-side and exchanges – through discussion of industry issues.
“Often firms don’t know that they are using FIX, so it falls to us to emphasise the benefits of standards themselves in terms of keeping costs down and providing access to wider technology,” explains Mangles. “Previously FIX would often be implemented under the bonnet – now we are in a position to better protect the standard, making proprietary elements less prevalent.”
To extend the use of the protocol beyond its initial remit of connecting the buy-side to the sell-side for effective electronic trading, FPL is working increasingly closely with exchanges, promoting FIX's flexibility but ensuring a standard approach is adhered to. Hong Kong Exchanges and Clearing, Singapore Exchange (SGX), Bursa Malaysia, the National Stock Exchange and the Bombay Stock Exchange in India have all become members in the last few years.
“We are running a programme with a number of exchanges so that as they grow into FIX 5.0 the implementation is as standard as possible,” he says. “We have to check that any deviations away from the standard can be brought in and incorporated in a service pack, so the deviation becomes incorporated in the standard itself.”
FIX must take into account the local market rules and microstructure issues so that it contains the functionality to deal with them. This means ensuring that pre-trade risk management checks are adhered to or that the order thoughput limits are supported by the latest version of FIX.
The consensus required to make the protocol function has led FPL to become a talking shop of sorts, able to tackle specific challenges in the region.
For example when India's regulator, the Securities and Exchange Board of India, announced that smart order routing (SOR) would be permitted, the industry was left to put in place the technology and infrastructure needed to make it a reality.
In response FPL formed a working group of buy-side, sell-side and technology vendors based in India. “They are ideally placed to know what the issues are and how we can move the discussion forward to improve the infrastructure and regulation to enable SOR to happen,” he says.
Being an industry group means that the regulator or exchange can turn to FPL to get perspectives in a neutral, constructive and consolidated way with a consensus from either the major buy-side or sell-side firms. An example of this was the preparations that took place in Hong Kong to ensure the market was ready for the launch of the Hui Xian renminbi-denominated REIT in April.
“We can speak to the government as required which was a role we played with renminbi readiness in Hong Kong,” he noted.
On 25 May, FPL will be holding the 9th Asia Pacific Trading Summit, which will feature panel discussions on high-frequency trading liquidity, the effect of transaction cost analysis on trading and the potential for Asia to leapfrog the US and Europe through the adoption of cutting-edge technologies.
“As exchanges roll out new upgrades and systems, how can Asia help set the pace?” he asked. “At the event we are also looking at the liquidity aggregation space, particularly from the perspective of the last mover advantage.”