Using FIX can cut the cost of connecting to multiple trading destinations and reduce risk, according to a new report by economic consultancy Oxera examining the benefits of the financial messaging standard to global trading practices.
The report, ‘The Benefits of the FIX Protocol’, stated that increased uptake of the messaging standard can help users improve capital market operational efficiencies, reduce risk and generate considerable cost savings, which, if passed on, could deliver significant financial benefits to the end investor.
According to Oxera, using FIX reduces connectivity costs by decreasing the time and complexity involved in linking to multiple trading counterparts across different geographies. The report claims standardised connectivity solutions such as FIX have significantly eased alternative trading systems’ entry into the US and European markets because they enable market participants to connect to the new systems for a comparatively small cost.
Additionally, the study noted that the ability to keep real-time track of the ownership and location of increasingly complex financial instruments afforded by FIX can bolster financial stability through easier and more efficient regulatory monitoring.
“Industries that require complex communications between different players in the value chain often exhibit very strong efficiency benefits from the standardisation of those communications,” said Fod Barnes, senior adviser at Oxera. “But getting the standardisation needed to realise these system wide benefits requires coordination and cooperation, which does not always happen on its own. The capital markets are a very good case in point, and this study illuminates both where these benefits have arisen, and where they could arise in the future. Given the complexity of these markets, and their economic importance, getting the standardisation right can deliver real benefits to both investors and regulators.”