September 21, 2010

FIX: The Basis for Technological Advancement

FIX protocol is essential for the adoption of DMA, algorithmic trading, and other technologically sophisticated techniques. Most of these services cannot be handled manually; automation is key. FIX protocol solves this fundamental issue by providing a protocol of communication on top of which all these other sophisticated techniques operate.

The story of FIX adoption in India is intricately tied to the foreign institutional investment (FII) flow into the country. As FII participation has grown over the years, it has indirectly affected the adoption of technologies like FIX in the marketplace. Many international investors have made significant investments in FIX networks and order management systems (OMS) and place their orders through them. Some Indian vendors have developed FIX-enabled order management systems and plan to launch FIX-enabled advanced electronic trading capabilities.

Another driver has been the introduction of DMA. DMA support means support for FIX, and demand from clients for DMA support has spurred FIX adoption. Currently, the FIX protocol has been actively implemented by international players in India for their global operations. Buy side firms that use FIX are typically large traders or part of a global franchise. Sell side firms implement it to meet client expectations and enhance their value. Other firms that trade exclusively in Indian markets do not really require this, unless volumes are high enough to justify the cost involved in using FIX.

—Arin Ray and Sreekrishna Sankarwith are analysts with Celent based in Bangalore, India. They are co-authors of the Celent report, “Indian Capital Markets: Trends and Prospects" For more information, visit Celent.