Introduction

Straight through processing has long been one of those mythical goals in financial technology (much like the Golden Copy or T+0). Of course pockets of STP, where the trade lifecycle is more or less ticketless and seamless, do occur-in various asset classes or geographical regions.

The key players in the quest for STP could be the International Standards Organisation (ISO) (which is largely to do with the use of Swift messages), FIX for front end trading, FpML (Financial Products Market-up Language) for OTC derivatives, combined with the semantic project being spearheaded by the EDM Council.

Swift (Society for World-wide Interbank Financial Telecommunications) with its strong European marketshare is the de facto standard for post-trade messaging. However, the FIX Protocol (Financial Information eXchange) has long had a strong US-base and is heavily used for equity trade execution. The migration of FIX around the globe and to other asset classes, most notably foreign exchange, is a major factor in the march towards STP.

Key findings

• Beyond equities – FIX is moving into the FX market, but fixed income and OTC derivatives remain elusive
• STP - FIX is dominant in the front to middle office equity STP, but it is unlikely to topple the DTCC/Omgeo or Swift for the middle to back office
• FIX Engines - Open source is the future-why pay for a commoditised product that gives little competitive advantage?

Conclusion

FIX is the de facto front office trade messaging protocol for most global equities. Its market saturation is due to the volunteering efforts of its network of member firms-which include banks, buy-side institutions and exchanges.

Recently, FIX has made heavy inroads in the FX market. However, the fixed income market has proved more elusive. Penetration into the OTC derivatives market, like fixed income, as also been sparse.

Although many in number, FIX engines are considered a commodity among banks. There is real evidence that open-sourced FIX engine technology may erode third party FIX engine provider market share. However, it is unlikely that FIX will replace the DTCC/Omgeo hold over the middle office, or Swift’s dominance in the post-trade arena.

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Tagged with: 2009, FIX, Technology Research Report