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George Kledaras
George Kledaras
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Is FIX Protocol Use Declining?

FIX may be the dominant standard for buy-side to sell-side electronic trading around the world, but binary protocols such as OUCH have gained traction among high-speed traders. Now the rise of Bitcoin and crypto currencies is fueling the next stage of evolution.

We've been having our own great debate about fairness in the markets, and it's about native binary protocols versus the Financial Information Exchange (FIX). Binary protocols are built for performance with no regard to a human operator if something goes wrong. FIX, by contrast, is all strings, easy to read and search, and fast enough for most uses.

Binary protocols have been adopted since 2005 by the world's exchanges to cater to the most volume-driven strategies. Exchanges are very eager to work with high volume because of the revenue potential. It is true in the USA in equities, options, and futures. It is true in London, Europe, and other places. But FIX is widely adopted by the buy side, sell side, exchanges, networks, and dark pools.

Going back to 1993, the FIX protocol was designed by the buy side to talk to the sell side. Over the last decade, savvy dark pools, ATSs, and exchanges that wanted to tap into the buy side have directly supported FIX. Many buy-side OMS vendors like Charles River Development, Eze Castle, and Bloomberg TOMS only send trades using FIX.

Some exchanges such as Nasdaq support both the binary protocol OUCH and FIX. Any trader will tell you that OUCH is better for low-latency trading than FIX. OUCH's fields are in fixed positions, and numbers like quantities and prices are native, not represented as strings, as they are in FIX. It is much easier for a CPU to read a message and interpret it into a computer language like C++ or Java. FIX needs to be parsed one field at a time, searching for delimiters that mark the end of data fields. And then numbers like a floating-point price need to be converted from a string -- an expensive operation that takes up CPU cycles. Because of this, the overhead of FIX carries more than double the latency and throughput of OUCH.

Why is there a cottage industry built around FIX engines, but no OUCH engines? Well, for the most part, OUCH is much easier to implement than FIX. FIX is designed to be all things to all people -- multi-asset, multi-currency, pre-trade through post-trade workflows -- so it takes a lot more care to build a FIX engine to cover all the cases. OUCH was purpose built for equities trading (and much later ported to support equity options). It's much easier for programmers to build high-speed implementations of OUCH than FIX.

For the most demanding traders and market makers, the last connection into the exchange needs to be really robust. Exchanges often listen to their most demanding customers, and this means implementing binary protocols like OUCH. Binary protocols are simpler for programmers to implement, easier to scale, and better on bandwidth and CPU than FIX. Jamming in more messages in a shorter amount of time to the exchange is really important to many successful strategies.

Is FIX use declining? Well, not yet, and probably not for a long time. Where low latency is important, there is robust growth in binary protocols driven by the world's exchanges and high-volume traders. Where the market community is catering to systematic, algorithmic trading, FIX continues to grow.

Meanwhile, new protocols like Bit Protocol for crypto currencies are based on easy-to-implement, low-latency technologies based on JavaScript Object Notation, which gives you the flexibility of FIX and the ease of implementation and low latency of OUCH.

The new Bit Protocol is known to elite speed traders and, of course, to exchanges, but not necessarily to all buy-side and sell-side firms. This is part of the debate around HFT that not all plumbing is explained. But exchanges are driving this innovation, and Bitcoin/crypo currencies will drive it further. Let's see how quickly these new protocols are adopted and how the landscape changes in the next few years.

George Kledaras is the founder and Chairman of FIX Flyer, a financial technology company in New York City. He is also the author of numerous articles about the FIX protocol and electronic trading standards, and a frequent speaker on the major technology issues of our ... View Full Bio
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IvySchmerken
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IvySchmerken,
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5/29/2014 | 1:12:26 PM
FIX vs.Binary Protocols?
I assume the binary protocols like OUCH and ITCH have been gaining traction among low-latency/high frequency traders and exchanges. Yet during this same time period, FIX has evolved into a global standard accepted by exchanges, ATSs, institutions and brokers. Do you think this fragmentation is problem for the FIX community? If buy side firms wanted a faster protocol they would have adopted OUCH and ITCH by now.

Regarding Bitcoin and cryrptocurrencies, it sounds like an opportunity for FIX to be developing a protocol for Bitcoin and other digital currencies. Do you see any momentum there? This is still an evolving area but several bitcoins exchanges have been announced. Atlas trading platform partnered with the National Stock Exchange (NSX), a small US stock exchange, to create the first U.S. regulated cryptocurrency exchange. But reportedly NSX is closing up, so I don't know where that leaves the Atlas deal. SecondMarket is also looking to bring bitcoin trading under a regulatory framework to encourage trading. I sense the innovation in protocols is going to come from members of the cryptocurrency trading community.
kledaras
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kledaras,
User Rank: Author
6/3/2014 | 10:41:28 AM
Re: FIX vs.Binary Protocols?
All of this is very much customer driven. It's very competitive in the low-latency access space right now, but in order to contain costs on both sides of the trade, everyone is leveraging OUCH or FIX. ITCH is specific to equities for market data. Every exchange writes their own binary protocol to gain that edge with their biggest market makers and volume traders.

The reason the buy side sticks with FIX, even the event and stat arb quants, is because it is easy to switch to a new broker or venue if your systems are in FIX. I do not see this changing.

The interesting thing about the new crypto-currency technologies is that they are geared for peer to peer and not as a transaction driven through an exchange styled central hub. Imagine a day when you can buy and sell directly from an institution safely without going through an exchange/broker/market venue. There are problems to solve through the entire supply chain but if it is done properly there would be a great saving on a fund's operational cost. And the information content alone could be important for the price discovery process. All sorts of new strategies will become suddenly viable. Let's see how the technologies, regulations, and politics play out.
JustinB229
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JustinB229,
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5/29/2014 | 2:18:25 PM
FIX is Variable
The worst thing about FIX is that every exchange and every platform uses FIX differently.  It's just a suggested standard.  People think that because an exchange uses FIX, they are required to follow those rules.  That is not true.  It is not as universal as you would think.  Everyone does it differently.  Compare the CME FIX to CBOE/CFE FIX, and you won't find many similarities.  The CFE marches to the beat of their own drums.

In the online trading world, companies like Tradier, TradeKing, and even Etrade are using web based languages and authentication APIs for third parties to connect, which are more similar to the Silicon Valley tech conpanies like Twitter and Facebook than they are to FIX based connections used by HFT.  Oauth makes integration much faster.  When used with fwo factor authentication and advanced encryption, trading systems can not only integrate faster and more seemlesly, but use modern web technology which helps aleviate the problems associated with downloadable software like patch updates, backward compatability, download instructions and packages, etc...

Hybrid cloud infrastructure like Microsoft Azure and Amazon AWS are offering direct connectivity with the speed of fiber, so web based front ends with cloud based execution on the back end is much more cost effective.  

When you're looking at the FIX protocol as a peice of the programming community as a whole, it's such a small and insignificant part.  FIX just hasn't kept up with the rate of change we've seen in other programming languages.  

To hire a FIX programmer is also much more expensive than most other languages.

 
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
5/29/2014 | 6:46:09 PM
Re: FIX is Variable
Good point on the non-standardness of the FIX "standard."


It will be interesting to see if the Silicon Valley types can have an influence on the way that the trading groups and exchanges connect with their legacy technologies.
kledaras
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kledaras,
User Rank: Author
6/3/2014 | 10:50:39 AM
Re: FIX is Variable
FIX is still all we have and the promise of FIX has been largely met. It's still easier to connect to 100 counterparties using FIX then proprietary APIs.

But you are right, if you are only connecting to three or four brokers, why not use the most convenient which is going to be a modern, web based API with security and controls built in.

Every fixed income quant I talk to uses Python or Ruby higher level languages than C. The days of being the fastest using brute force speed are giving way to the creative types finding edge in algos and smarter routing. It's just a matter of time that people use Angular/Node.js like they do in silicon Valley.

Are we finally moving away from a transactional model and to an information based model on Wall Street?
jnorthey499
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jnorthey499,
User Rank: Apprentice
6/3/2014 | 12:08:18 PM
Re: FIX is Variable
George thanks for gaining some market attention for FIX standards with the title of your post. Having worked with you since the late 1990s, I appreciate your evangelism and support of FIX. Most folks don't realize, that in addition to your evangelism and support of FIX, you also had a major role in proving the viability of Java for Wall Street. We benefit from your thought leadership.
 
I want to reply in my role as one of the FIX Global Technical Committee Co-chairs.
 
 
From my experience each time I see a plateau and think that we have finally reached a saturation point with FIX there is another burst of adoption and growth. We are in one of those phases now, with FIX automation extending further out to investment advisors and advanced individual traders. There is a burst of activity around the buy side, fixed income, and swap execution facilities. We are seeing frontier markets using FIX to improve market quality and enable foreign investment.
 
Regarding binary interfaces, FIX two years ago formed the FIX High Performance Working Group (HPWG) led by Fred Malabre of The CME Group.
 
We are completing our HPWG work and are looking for market participation in taking our release candidates to full draft status by testing both functionality and interoperability. We recognize in a very narrow environment of quoting, high frequency trading, the existing FIX session layer is not fit for purpose. However, order routing to venues is not only fit for purpose, its use is being expanded globally. The creation of proprietary interfaces built primarily at the request of major high frequency trading market participants has reached its high water mark and there is a move and interest in using standard interfaces.
 
As part of our next generation FIX initiative this year we see the need for multiple encodings of the FIX business messages. We need to be able to integrate the FIX business processes, as defined by our application messages, into the environment using a number of industry standard and fit for purpose encodings and messaging technologies.
 
The work completed so far by the HPWG is:
 
High Performance and Standards Compliant Encodings
 
Simple Binary Encoding Release Candidate 2 status. This protocol addresses the need for a simple direct content accessible binary message format similar to those in use in various proprietary protocols, with the added ability to easily extend message formats. Don Mendelson for the CME and a group of FIX and industry participants have done excellent work on a flexible approach to binary encoding.
 
Google Protocol Buffers Encoding - supporting FIX in a standard manner over a de facto industry standard from Google.
 
ASN.1 Encoding - compatibility with the international standard message encodings, widely in use in the Telco and network management verticals.
 
In the future we plan to define an encoding for JSON.
 
High Performance FIX Session Layer
 
The first release candidate of FIXP - the new FIX performance session layer is being submitted to the GTC this month by our HPWG Session Layer Subgroup. FIXP is derived from the functionality provided by NASDAQOMX SoupBinTCP, UFO (UDP for Orders), and MoldUDP (Multicast data distribution). The intense, focused engineering work on FIXP is being led by the XMIT protocol developed by Pantor Engineering as part of their Blink Protocol. We are building something that is not intended to innovate, but instead to standardize and package successful proven functionality into a clean, consistent, and quality manner.
 
In addition, our HPWG application level optimization group are addressing the features of Ouch that are needed within FIX to support high volume quoting, market making, and automated trading, usually associated with high frequency market participants.
 
Most importantly from my perspective, FIX is working aggressively on a fully thought out, fit for purpose, modern event driven market data interface derived from the Itch market data protocol. Yuval Cohen at E-trading Software on behalf of the community conducted an extensive survey of existing venue implementations of Itch-like protocols. What we found from this survey is that there is a wide variability across the various Itch implementations in areas such as low level message format, messaging, recovery, and business functionality. We think the industry can greatly benefit from a well thought out, fully defined, and ready to implement event driven market data model closely based upon Itch that is integrated with FIX, without the limitations and incompleteness and inconsistencies in the existing Itch implementations.
 
To conclude, far from usage decreasing, standard FIX usage is expanding, and FIX Trading Community created an improved standardization process for new technical standards intended to increase "fit for purposeness" of solution, reduce complexity, and most importantly minimize variability across implementations. Especially to minimize variability.
 
We now need industry participants to help build interoperable reference implementations of these protocols so that we can accelerate adoption, lower the cost of adoption, and address interoperability and compatibility issues from day one.
 
 
jnorthey499
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jnorthey499,
User Rank: Apprentice
6/3/2014 | 1:56:39 PM
Re: FIX is Variable
Justin - I think you raise some important issues here that the FIX Community should focus on in the future once the high performance working group concludes the brunt of their work. Coincidentally George Kledaras while he was at Javelin Technologies, a company he founded that is now part of NYSE Technologies, developed a FLIRT standard (George always good on the names), which was an Internet-ized version of FIX. That was back in 2000-2001.

We should learn how to integrate FIX business messaging into cloud stacks, I like the idea of Oauth integration.
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