The adoption of the Financial Information eXchange (FIX) protocol in Taiwan is giving international investors easier market access, while enhancing the efficiency of local brokers in serving buy-side clients, said two officials of NYSE Technologies, the technology services arm of global exchange group NYSE Euronext, whose FIX engine is among the most widely adopted worldwide.
Most top-tier brokers in Taiwan have adopted FIX, while a number of local vendors have started offering a FIX interface to brokers to enable connectivity to overseas buy-side firms. Edwin Lee, head of sales, Greater China, NYSE Technologies, said, “Several local buy-sides are also able to use FIX to send out orders to overseas markets because of this FIX adoption. Being able to handle FIX no doubt makes the local brokers more efficient.”
The Taiwan Stock Exchange (TWSE) started in December 2009 a ”network integration project' to allow small- and mid-sized brokerages to use only one communication line to connect with the country's different securities and futures markets via fixed line operators. It also involves an integration of the FIX protocol to allow trading firms to use one single application to conduct transactions in the different securities and futures markets.
The project, which is supported by Taiwan's financial regulator, the Financial Supervisory Commission, includes among its leading participants the TWSE, Taiwan Futures Exchange (Taifex), GreTai Securities Market and the Taiwan Depository and Clearing Corporation. Local brokers that have so far expressed interest in using the integrated services include Capital Securities, Hua Nan Securities, Fubon Securities, Jih Sun Securities, Yuanta Securities and Systex.
NYSE Technologies’ Appia is a FIX engine that enables FIX message handling and connectivity. With ultra low latency and high message throughput, Appia enables institutional investors to manage and validate electronic trading messages across different systems and networks. NYSE Technologies also offers Tradescope, an enterprise-wide FIX management and monitoring tool for day-to-day trading activities that allows clients to better manage their in-house FIX infrastructure. TradeScope enables clients to keep abreast of FIX trading activities in real time.
Peter Tierney, senior vice president, NYSE Technologies, noted that FIX adoption represents an important stage in the evolution of Taiwan from a domestic-focused market into one that is in line with international standards. That evolution can be divided into six stages, with the first being the adoption of FIX by local brokers to facilitate their order flows from overseas clients. “That's the basic entry level and there's really no way other than FIX. The brokers in Taiwan have been on that road now for five years. It's a lot easier now for a buy-side firm in New York to trade Taiwanese stocks because the brokers can electronically route orders to them.
“We don't think any market will see growth in international investments unless they've got that first stage. The next stage is where the exchange starts to adopt FIX and create more of an ecosystem around FIX locally. And Taiwan is doing that already with our highly adopted Appia FIX software,” Tierney added.
The Taiwan market is currently at the third stage of evolution, where the exchange looks to upgrade the capacity and latency of its trading infrastructure. “What makes a market international has less to do with FIX and more to do with the exchange's own technology,” said Tierney. “The next thing that's playing out in Taiwan is where the exchange itself is looking at its market structure and their technology platform and starting to line these up to be faster and more continuous as a market.”
He added that the FIX protocol, by offering connectivity between a broker and its clients, is the single biggest catalyst for the growth of any market. For example, the Hong Kong Stock Exchange (HKSE) and Tokyo Stock Exchange (TSE) are not FIX supporters because these exchange have opted for their own proprietary protocols. However, the Hong Kong and Japanese markets are huge adopters of FIX in terms of connection between the buy-side and brokers. “FIX is more relevant and important as a connectivity between a broker and its clients, and FIX has good relevance between the broker and the exchange, but its critical in the first and optional in the second,” Tierney said.
It is estimated that around 60-70% of buy-side order flow into Hong Kong brokers for execution on the HKSE is communicated using FIX. But between the broker and the exchange, the HKSE uses a proprietary protocol “The important part for a market is not whether the exchange has FIX or not; if the broker has FIX to get to the client, that's really important. When the exchange offers FIX as an option to their members, that's really good. The TSE does not support FIX but that market is very mature and has grown because the brokers use FIX,” Tierney noted.
The next stages of development in Taiwan would be the consolidation of its cash and derivatives platforms, followed by work on getting better and faster market data feeds directly from the exchange, and further down the road, the offering of co-location services. “If Taiwan follows a similar path as the other exchanges, it will probably look to consolidate its cash and derivatives platforms. We saw it happen in Australia with the Sydney Futures Exchange and Australian Stock Exchange, in Singapore with the Singapore Exchange and Singapore Commodity Exchange, and in Hong Kong with Hong Kong Exchange and the Hong Kong Futures Exchange. It is certainly a step that's bound to be considered when you start to consolidate the market. The fifth step that's likely to happen to make a market attractive to international investors is the market data inevitably once the brokers adopt FIX and the exchange refreshes its technology. As soon as international investors see faster deeper markets, they're going to want to see better price feeds coming directly from the exchange,” Tierney said.
Author: Jill Wong