January 23, 2003

As FIX Protocol Limited (FPL) revisits the idea of a centralized-certification program to support fixed-income, one vendor involved in a previous certification effort is offering to provide the service for free.

Sam Johnson, CEO of TransactTools, Inc.--who currently runs a free-Web site called Open FIX-- proposes setting up a similar-Web site branded and sponsored by FPL that serves as a centralized testing facility for the industry. Johnson says he has offered to build and host the testing facility for free and suggests that FPL give input on the tests that are hosted.

Johnson--a former Goldman Sachs executive who previously sat on the FPL Global Technical Committee--says he has spoken several times with Daniel Doscas, chairman of the Global Fixed-Income Committee, who is revisiting the certification issue. Doscas declined to provide details about his vision, other than say the certification effort is in its initial stages and needs to be approved by the FPL Global Steering Committee.

"I have submitted some documentation that's not for public consumption yet that we need to vet out and then once that happens there'll be a process where vendors and firms will be invited to address that kind of program. That's when we'll be more able to address that in the public domain," he says.

A similar initiative for equities called TradeAssure was set up for FPL three years ago by a consortium of vendors including SIAC, the New York Stock Exchange's technology subsidiary, Hewlett-Packard and The Open Group, a standards body. The three companies told the FIX Global Technical Committee that their business model would allow the certification process to be self-funding, but the effort was never more specific than that, recalls Johnson, who sat on the committee.

At last week's press briefing following the FPL Americas kick-off meeting, Michael O'Conor, Americas Committee co-chair, says the new initiative "will not take the appearance of what Trade Assure was." However, he didn't close the door on setting up a separate certification company, stating: "Nothing is foreclosed."Two of the challenges that doomed the first effort were the cost of launching such a service and second, the lack of widespread agreement on "the right way to do things," says Johnson. Within a short time, the consortium disbanded and the idea was tabled, says Johnson, who left Goldman and the committee, and in 2000 started TransactTools.

Johnson says that FPL should offer some type of FPL-branded, FPL-sponsored testing facility for fixed income implementations in the early days when firms are first building their implementations. But, they shouldn't call it certification--"black or white, you pass or you fail."

Johnson is against reviving the centralized-certification idea--based on a hub and spoke model-- where FPL puts a machine in the middle and everyone is certified against it--because he questions the feasibility of imposing a single right way to do things with FIX. Instead, Johnson proposes building a centralized-testing facility that would use automated tools and testing scripts. Johnson says the concept would be modeled after the way electronic communications networks (ECNs), such as Archipelago, Bloomberg TradeBook and Instinet, successfully do peer-to-peer testing with their trading counter parties to ensure compatibility.

"What you can do is say, here's a testing facility where we make available our recommended way of doing things. We let you test against a virtual trading partner as you build your system to make sure that you are doing things as close as possible to the way that we recommend doing things."

Toward the end of 2000, Johnson went back to FPL, telling them he had a platform that can now offer centralized testing similar to what the committee was discussing a year earlier. He offered to host it for the industry and brand it FIX Protocol Limited and offered to put up tests or simulations. But FPL didn't show interest and it wasn't clear whether certification was their priority, he says.

Instead, Johnson launched a free service built on ttCert called Open Fix where it posted "a document explicitly defining the behaviors for different session level scenarios in the FIX protocol." "We automated all these tests and put them up on Open Fix for free just to see what the level of interest was for some kind of centralized testing facility. The interest was huge," Johnson claims, noting that 1,000 or so companies around the world used the service and companies continue to sign up for it at the rate of three or five a week. One of the motivations for reviving the FIX certification idea is to avoid the fragmentation that exists among the multiple versions of FIX for equities.

Since the fixed-income support in the FIX protocol (version 4.2 and 4.3) isn't being used now--and the next version, FIX 4.4, will offer more fixed- income functionality --firms (will) have questions about how to implement it. Doscas has recommended that they take a different tack than in the equities market where sell-side firms that are up to 4.2 and 4.3 must support multiple versions of the FIX protocol because their buy-side customers are still using 4.0 and 4.1 versions.

One source suggested that fragmentation of the protocol in the fixed-income market could be avoided if certification is offered up front. The global steering committee is said to be interested but hasn't resolved how it would be implemented, says Johnson.

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Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in ...