Implementation Guide

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1. Introduction

Since its first release in 1995, the FIX Protocol has continued to expand to include support for more asset classes as well as additional steps in the trade lifecycle. The latest version of the Protocol, Version 4.4, has added detailed support for a wide selection of fixed income instruments, futures and options, and more comprehensive support of post-trade allocations, among other features.

FIX and the future

FIX began as a collaborative process between Fidelity Management & Research and Salomon Brothers equity trading departments. The firms sought to create an electronic communication protocol to improve order routing and trade processing between counter-parties and exchanges. The two firms undertook a proof of concept pilot to prove the feasibility of the effort. Once successfully completed the firms organized a U.S. based FIX Committee, which contained some of Wall Street's major names. The committee held its first meeting in June of 1994. The committee held monthly meetings with each firm working toward a production version of the Protocol. In January 1995, FIX version 2.7 was released to the financial community. As interest in the Protocol gained momentum, the U.S. Committee created a FIX Technical Committee to answer questions, add information and anticipate changes to the Protocol. From this initial technical committee came the release of FIX 3.0 in September 1995, FIX was off and running.

The early days of the Protocol and most of the implementation efforts focused on equities. In 1996, a European FIX committee was created to represent the interests of firms in the UK and Europe. In 1998, the Japanese FIX Committee began. The Protocol expanded to cover, option trading, ECN features and allocation messages. In late 1999, the FIX organization took steps to extend the Protocol beyond equities.

With the approval of FIX Protocol members, Putnam Investments and Merrill Lynch volunteered to expand the use of the FIX Protocol to fixed income. The two firms collaborated much like Fidelity and Salomon Brothers did years earlier. The proof of concept pilot began in December 1999 and the firms worked through Y2K planning. By March 2000, the firms successfully completed the proof of concept pilot. The proof of concept included adding four user-defined tags (UDT) to support fixed income. The UDT's included yield, maturity, benchmark and spread to benchmark. Also, in March 2000, FIX version 4.2 was released and included the four tags to support fixed income. The success of the proof of concept pilot lead the FIX Protocol organization to create the Fixed Income Working Group (FIWG). Since 2000, the FIWG has added tags, message formats and attributes to expand FIX Protocol's ability to support fixed income products. The FIWG is now known as the Global Fixed Income Committee.

Over the years the financial community has witnessed FIX Protocol grow as a technology and as an organization. In order to facilitate growth and prepare for the future, FIX Protocol Limited (FPL) entered into several Statements of Understanding (SoU) with other industry organizations.

The first such SoU occurred in July 2001, with SWIFT. This statement of understanding focused on convergence between pre-trade and post trade processing in the use of ISO 15022 XML. The organizations and their members agreed that such convergence would bring straight through processing (STP) closer to realization.

The second SoU occurred in October 2001, with The Bond Market Association, effectively merging the standards efforts of both organizations. The Bond Market Association represents securities firms and banks that underwrite, trade and sell debt securities. The Association strives to standardize market practices and commonly used documentation, both to promote efficiency and to reduce costs in the largest securities markets, the $17 trillion global debt markets, with three million active issues and as many inactive issues. A long-standing goal of the BMA is to help modernize the electronic infrastructure of the fixed income markets to facilitate STP.

The Association published plain English documents that describe current business practices in various fixed income markets. The purpose of these documents was to serve as a blueprint for the Protocol development effort to make sure that FIX captures the complex needs of fixed income trading. The FIX Technical Subcommittee performed a Gap Analysis based on the plain English documents and suggested changes in FIX message flows and formats that are now incorporated into FIX 4.4.

A complete new set of messages was added to the Protocol based on the plain English document that described institutional allocations.

These plain English documents provide a very good reference source for explaining the trading process. The documents are available at the BMA web site:

http://www.sifma.net/story.asp?id=458#topdog1

The strong relationship between the two organizations was also demonstrated late in 2002, during a meeting with U.S. regulators in Washington, D.C. A portion of this meeting was dedicated to a presentation and Q/A regarding Protocols, standards and STP and their impacts on the financial services community. The BMA's ongoing communications with regulators in New York, Washington, D.C. and internationally continues to allow both organizations to maintain a dialogue to educate and update regulators.

The Bond Market Association continues to work with the FIX Protocol Ltd, particularly with the Global Fixed Income Committee and its subcommittees, in various initiatives, such as the Certification Initiative, to support the increasing use of a standard electronic trading protocol in the fixed income industry.

In 2002 FIX Protocol Limited (FPL) realized that expansion in Protocol adoption required the organization to adapt and grow. Therefore, FPL decided to open membership and restructure the organization across industry asset classes and geographic regions. FPL also decided to search for an Executive Director (ED). This newly created position helps run the FPL organization and educate the financial community on the use of the Protocol. The ED, reports directly to the FPL Global Steering Committee.

The future of FIX will continue to satisfy its member's needs and requirements as evidence by increased support for products such as fixed income, futures, derivatives, and CIVs. FIX will also continue the increased support for full trade life cycle processes such as allocations, confirmations, and execution reporting. These new industry-wide initiatives will build upon the recently released FIX 4.4 and include new technology such as XML. In addition, growing cooperation between FPL, the Bond Market Association, SWIFT and other industry organizations continues to operability from the front office to the back office.

Audience

The benefits of FIX

• The fixed income community will leverage the experience of OMS providers, system vendors, integrators and developers who have a deep knowledge of supporting FIX on the equity side of the business.
• Reduces reliance on broker and proprietary solutions. By embracing FIX, users leverage open standards embraced by the BMA and global fixed income communities for multiple security classes.
• Flexible protocol that allows you to be responsive to changing customer and market demands.

Benefits to the dealer

• Helps to increase efficiency by freeing up valuable time otherwise used to communicate price and execution data. Allows for greater focus on complex trading issues that require client contact, market color and commentary.
• Helps to reduce costs associated with manual errors in the trade entry, execution, and post trade processes, by allowing for a more seamless integration of various order management applications and functionality.
• Improves dissemination of price information, allowing for more efficient monitoring of market liquidity.

Benefits to the sales trader

• Allows traders to continue speaking with dealers via the telephone and email for complex trading issues that require market color and commentary, but the transmission of information such as side, quantity, issue, price, etc. is communicated electronically so there is less potential for human error.
• Seamless and real-time communication of execution data throughout the day, so the dealer is constantly kept up-to-date with the status of their order without having to be called several times a day to report on progress. This enables traders to concentrate more efforts on executing trades, rather than reporting on the status of orders.
• Although electronic, the dealer can still "touch" the order (i.e., cancel, change the nominal, place limit prices and other instructions against the order) at any time during the day. The sales trader has the ability to "accept" or "reject" any of these change requests from their order management application.

Benefits to IT

• Minimizes business risk by helping to prevent loss, modification or misuse of business critical information exchanged between organizations.
• Improves system scalability by embracing an industry standard protocol, and improves operational efficiency and control of the investment process through automation.
• Reduces the need to support multiple solutions across business units (Fixed Income, Equity, Derivatives, etc.), which is inefficient and not cost effective.

Benefits for the buy and sell sides

• Increase in speed and efficiency of entire trade entry, execution and reporting process, which helps to facilitate STP and reduce costs associated with manual errors.
• Enables seamless connectivity to multiple counter-parties and enhances price transparency and access to liquidity.
• Helps to increase efficiency by freeing up valuable time otherwise used to communicate price and execution data. Allows for greater focus on complex trading issues that require dealer contact, market color and communication.

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