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FIX Trading Community Revamps Efforts to Address High-Performance Trading

The nonprofit industry standards body said it has combined all initiatives related to the support of FIX for high-performance trading and market data under a single working group.

FIX Trading Community, a nonprofit industry-driven standards body, is consolidating all initiatives related to supporting FIX for high-performance trading and market data into a single working group.

The move is intended to underscore the importance of supporting high performance within the FIX family of standards. The goal is to offer the industry an alternative to proprietary interfaces such as ITCH and OUCH, which have gained traction in high-speed trading and market data.

The High Performance Working Group (HPWG) will be extended with additional subgroups and will include the initiatives previously conducted by the Market Data Optimization Working Group (MDOWG). The new HPWG will report directly to the FIX Global Technical Committee (GTC), according to today's announcement.

The work began in 2006, when FIX Protocol Ltd., later rebranded as FIX Trading Community, released the FAST (FIX Adapted for Streaming) protocol to support high-throughput, low-latency data communications among financial institutions. But Hanno Klein, co-chair of the FIX Global Technical Committee and senior vice president of Deutsche Borse Group, told us the majority of the work related to supporting high-performance trading and market data was done in the past two years.

Binary protocols have gained adoption by exchanges because they suit the needs of high-frequency traders, who need high performance in trading and market data. The next generation of the FIX Protocol will fully support high performance on all levels: application, presentation, and session.

Twenty years ago, when the FIX standard was designed by Salomon Brothers (later acquired by Citigroup) and Fidelity, the focus was on reducing the fax machines and getting the order routed between buy-side and sell-side counterparties, Klein said. "It wasn't about high speed, performance, and bandwidth. This has come in the limelight in recent years, in which CME, Deutsche Borse, and any big execution venue is interacting with a multitude of participants at the same time through electronic communications, either by taking in transaction requests or taking in market data."

George Kledaras, chairman of FIX Flyer, wrote in a blog post for Wall Street & Technology in May: "FIX is widely adopted by the buy side, sell side, exchanges, networks, and dark pools... Some exchanges such as Nasdaq support both the binary protocol OUCH and FIX." However, "any trader will tell you that OUCH is better for low-latency trading than FIX."

To stay relevant to exchanges that must respond to high-performance traders and needs for market data, the FIX organization is redoubling its efforts.

"We are trying to make sure that FIX is ready for that next level," Klein said. "A lot of execution venues in the past had an excuse that they can't use FIX for the heavy lifting because it wasn't good for high performance." They said they had to use a proprietary interface instead. "We are trying to take away that excuse."

CME Group is already implementing the preliminary version of the high-performance standard, known as known as Current Release Candidate. "Simple binary encoding is one option for the presentation layer, and CME has decided to use the Release Candidate," Klein said. In addition, Deutsche Borse strategically decided a few years ago to start using FIX, but it had begun its work before the preliminary specification was ready.

Fred Malabre, senior director of CME Group, said in FIX Trading Community's press release:

    Over these last two years volunteers of the High Performance Working Group delivered Release Candidate Specifications for a high-performance version of FIX Protocol covering all layers, which provides a strong foundation for the next generation of FIX Protocol. I look forward to the extension of the working group to continue addressing business and standardization needs within the industry.

Klein said the key is that "the community agrees on doing it the same way," so that vendors and firms accessing multiple venues have to do it only once. "It's very easy to offer better products if they are supporting this standard."

High-frequency trading has received press coverage, more negative than positive lately. Nevertheless, "the fact of the matter is that a lot of exchanges are interested in high performance," he said. "Exchanges will offer services to this part of the trading community, and we [will] try to increase the coverage of FIX by that angle." It takes time to develop standards, "but then once they're in place, they are hard to remove. You have to get it right and take your time."

Those that license any Nasdaq OMX technology will get ITCH and OUCH, which has become a sort of de facto standard across the industry. But this is not an open standard that you can join a working group to change. "It is still a proprietary technology that is controlled by a single entity."

Regulators and swap venues
Right now, the primary targets for high-performance FIX are the execution venues, but "the regulators cannot be forgotten," Klein said. Regulators are interested in moving more trading activity on to exchanges to increase transparency and to reduce systemic risk. For example, swaps are being taken from bilateral counterparties to central venues. "Even if you have a few hundred participants, performance becomes more of a challenge." These swap execution venues also need to provide market data to a few hundred participants to create transparency into the market, so this is where high performance becomes relevant.

With regulatory reporting on the rise for all market participants and vendors, Klein sees a role for FIX there, as well. "FIX is obviously very key in that the market participants can use standards for the reporting, and regulators don't come up with their own standard in every country for this reporting."

Firms that are actively trading with the FIX standard can do the reporting at a lower cost. "It's sort of the same standard that is being reused for the reporting purpose." Similarly, vendors that are releasing software for 50 different execution venues will benefit from a single standard.

As for how long it will take to drive adoption, Klein said it's hard for exchanges to react quickly. Since they have a few hundred members, you cannot force a change in interface on them within a few months. It will most likely start with exchanges offering a new access channel to their services using the FIX standard, and market makers will have a choice and make the transition.

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 the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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