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Why Leading Global Asset Managers Want to FIX Their Post-Trade

Firms have started to consider and use the FIX protocol for post-trade.

Ignatius John, Alpha Omega Financial Systems
Ignatius John, Alpha Omega Financial Systems
There is a sea of change underway in the world of investment management, specifically as it relates to the part of the trade-life cycle known as post-trade. A back office function with seemingly fixed costs, the post-trade process has received little attention as asset managers have historically pursued other areas of portfolio management and trading to implement innovative technologies.

But that has all changed of late. The difficult investment environment post-2008 has motivated asset managers to look for new ways to reduce post-trade costs that could detract from portfolio performance, e.g., ticket charges, commissions and cost of settlement errors. Similarly for broker/dealers, the downward pressure on commissions has created an imperative for them to consider ways to make their post-trade process more efficient and cost-effective.

With this goal in mind, key players in the investment industry have collaborated to establish a global standard for post-trade. For many of the reasons I will highlight, the Financial Information eXchange (FIX) Protocol has been identified and adopted as this standard.

FIX: A natural extension of the trading platform

Ease of implementation is an important reason the FIX platform appeals to asset managers and broker/dealers alike. The vast majority of the world’s trades are executed utilizing FIX, and as such, having the same protocol support portfolio management, trading and post-trade is a natural decision for most firms.

Although FIX has supported trade allocation since the 1990s, the enhanced workflow of FIX v4.4, coupled with the addition of comprehensive confirmation and affirmation detail, has enabled the development of complete post-trade solutions.

With both pre- and post-trade systems using a common messaging standard, the stage is now set to achieve true straight through processing (STP), i.e., a fully automated investment process from pre-trade to execution to settlement. After decades of striving to achieve STP, the industry is now much closer to achieving this goal.

Cost reduction, efficiency and risk mitigation

The FIX protocol, with its proven track record in supporting trade execution, offers numerous benefits for post-trade, including:

  • significant cost reduction due to industry wide use of an open, common standard;
  • increased operational efficiency through ease of integration with order management and trade execution systems to achieve near real-time performance; and,
  • risk mitigation implicit in the availability of multiple vendors and FIX networks, which minimizes a single point of failure.
To harness these benefits, several industry leaders from the buy-side and sell-side came together to participate in a Global Post-Trade Working Group, facilitated by the FIX Trading Community, to establish standardized post-trade guidelines that serve as best practice for the industry. These early adopters are now well on their way to implementing the FIX protocol for post-trade within their respective firms, and some have published their success stories.

The success of these firms in achieving a more efficient and cost-effective post-trade process will serve as a catalyst for the entire industry to adopt the new standard. Moreover, the continued collaboration of industry participants will extend FIX post-trade to additional asset classes, such as fixed income and derivatives.

A game changer for the investment management industry

The asset management industry is migrating towards a proven, global standard for post-trade, one that enables both buy-side and sell-side firms to lower costs, mitigate risk and increase operational efficiency. Several large investment firms and broker/dealers are leading the way, and their success will motivate the rest of the industry to follow suit. While consideration of the FIX protocol for post-trade may still be on the drawing board for some firms — the train, as they say, has left the station.

Ignatius John is the president of Alpha Omega Financial Systems--an innovator in post-trade technology. Considered by many to be an IT visionary in the securities industry, Ignatius is recognized as a pioneer in the use of the FIX protocol for post-trade. As Global Trading Strategist at AXA Rosenberg, Ignatius implemented a complete post-trade solution in 2008 using the FIX protocol. In various roles at AXA Rosenberg over two decades, Ignatius managed business strategy, product and technology development. He has a proven track record of implementing functional improvements to the investment process, from pre- to post-trade in the US, Asia and Europe. Alpha Omega's post-trade solution FIXAffirm is based on the industry standard FIX protocol.

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Ignatius John
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Ignatius John,
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1/21/2014 | 7:46:49 PM
re: Why Leading Global Asset Managers Want to FIX Their Post-Trade
Hi mjackson 02401, thanks for your question. We agree, there are a number of benefits to utilizing FIX for post-trade - achieving STP among them. And with the release of FIX 4.4, in our opinion, there is no real impediment to realizing STP. As early adopters become more vocal about their success with FIX for post-trade, I think you will see, there are many firms who share our view.
Ignatius John
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Ignatius John,
User Rank: Apprentice
1/21/2014 | 7:45:58 PM
re: Why Leading Global Asset Managers Want to FIX Their Post-Trade
Hi Ivy, thank you for your comments and question. Fortunately, there is no upgrade required to utilize FIX 4.4 for complete post-trade. To your point, asset managers already rely on FIX for their order and execution management systems -- a decision to use FIX for post-trade would not require any changes (or upgrades) to these systems as a FIX 4.4 session can be run over existing FIX connections. This is one of the many reasons adoption of the FIX 4.4 protocol for a complete post-trade solution is fairly straight forward for most firms.
mjackson02401
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mjackson02401,
User Rank: Apprentice
12/27/2013 | 2:22:52 PM
re: Why Leading Global Asset Managers Want to FIX Their Post-Trade
Ignatius, I'm new to the business as a prop trader but believe in the benefits of post trade analysis and game changing innovation. Risk mitigation as the result of the availability of independent multiply redundant vendors is a strong benefit. Do current vendor solutions resist this change? What impedes STP post trade implementation in the industry?
IvySchmerken
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IvySchmerken,
User Rank: Author
12/26/2013 | 4:24:30 PM
re: Why Leading Global Asset Managers Want to FIX Their Post-Trade
The financial industry has been struggling to implement full STP for many years. With the Global Post Trade Working Group establishing best practices for the standard through FIX 4.4, fully automated STP has a good chance of happening.
FIX already integrates with order management and execution management systems, and as you say, FIX 4.4 has enhanced workflow and details for confirmations and affirmations. No doubt, as you say, early adopters will lead the way and set an example. But, will the buy side look to upgrade to FIX 4.4. in 2014?
IvySchmerken
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IvySchmerken,
User Rank: Author
12/21/2013 | 4:29:24 PM
re: Why Leading Global Asset Managers Want to FIX Their Post-Trade
Ignatius, thank you for this update on the progress toward developing a global post-trade standard. FIX has been the protocol behind electronic trading in the front-office. It makes sense to see FIX becoming a post-trade standard as well. We're seeing this take off now because as you said, commissions have declined and brokers are looking to reduce fixed costs in the post-trade area, while asset managers are motivated to cut post-trade costs that eat into their performance. Even though the largest firms will be the first to adopt the FIX 4.4 standard, their collaboration could bring the rest of the industry along for the STP ride.
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