Electronic Trading: Bigger Fix

High-powered Wall Street businesses and slow-moving committee structures can be a combustible mix.

High-powered Wall Street businesses and slow-moving committee structures can be a combustible mix.

By Jeffrey Kutler
March 2003
Institutional Investor Magazine

Witness the demise of the Global Straight Through Processing Association, a once-promising multifirm effort to create a shared utility to streamline international securities trading and settlement (see Global Securities Services, page 82).

Another well-intentioned securities automation initiative, Financial Information Exchange, or Fix, could have suffered a similar fate. For much of the decade since executives at Fidelity Investments and Salomon Brothers laid the groundwork for Fix by convincing their industry peers to endorse a common protocol for transmitting messages between the buy side and the sell side, traders’ hopes for a simple and practical technical standard outran their firms’ ability to agree on the details.

But Fix Protocol, the not-for-profit coordinating body known as FPL, worked hard and got lucky: It came along just as the Internet was gaining commercial viability, largely thanks to open communications protocols on which Fix could be modeled. The technology significantly undercut the costs of previous, proprietary networks, and by the late 1990s the equities side of the securities industry was pretty much on board with Fix.

Now FPL is eager to expand the Fix empire. Over the past year FPL divided itself into six committees, four regional (Americas, Asia-Pacific, Europe and Japan) and two for new instruments (derivatives and fixed income). Late in 2002 the 45 brokerage and buy-side members of FPL opened their association to exchanges and technology vendors. By early February 32 new members had jumped in; they range from Euronext-Liffe and the New York Stock Exchange to market data suppliers Bloomberg and Reuters Group to software companies Charles River Development, Financial Fusion and Macgregor.

“We are ecstatic at the response,” says Michael O’Conor, a managing director of global equities at Merrill Lynch & Co. and Americas co-chairman of FPL. “We see diversity -- the types of new members, their locations -- and growth in committee participation across the board.”

Success, however, breeds potential pitfalls. “Our ability to do what we want to do requires new involvement and new blood, but we can’t be effective in meetings with 200 people in a room,” concedes Scott Atwell, manager of Fix trading and connectivity at American Century Investments and co-chairman of FPL’s global technical committee.

Hence the new, decentralized structure; members pay $8,000 in dues to join the committee of their choice or $25,000 for a global membership entitling them to access to all six panels.

Statistics on Fix adoption are hard to come by, but all observers agree that it has only just begun to penetrate derivatives and fixed income. Receptivity is certainly evident: FPL’s new members include the major Chicago options markets and the National Futures Association. Egar Technology, a derivatives-trading innovator, uses Fix for equity options, though it has no plans yet to go deeper, says Egar CEO Ravi Jain.

Fixed income will provide an immediate test of Fix’s wider mandate. Fix 4.4, the newly drafted update of the protocol, has elements designed specifically to accommodate bond trading. Electronic fixed-income platform TradeWeb, for one, is aggressively promoting straight-through processing aided by Fix.

“It took a long time for Fix to blossom in equities, but fixed income may be different,” says John Coulter, president of trading technology firm Javelin Technologies. “People have gotten accustomed to automated trading. It enhances the trading experience. It doesn’t eliminate people.”

Related