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Asset Management

11:54 AM
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FIX Takes On Fixed Income

After achieving total domination in the equities markets, FIX Protocol Limited sets its sights on conquering the untamed world of fixed income.

Fix Protocol Limited recently released the latest version of the Financial Information Exchange (FIX) protocol (4.4) which features new functionality in the areas of fixed income and derivatives.

The latest version of the standard, which has become the dominant protocol for buy-side/sell-side equities-order communication, is being tailored to suit the needs of the fixed-income markets.

Scott Atwell, co-chair of the FIX Global Technical Committee and manager of F.I.X. Trading and Connectivity with investment manager American Century, says that firms and vendors should take a look at 4.4 during the current three-week comment period. Following its release, he says, vendors and firms should then see if the enhancements offered in the new version mesh their business needs.

"The community adopts different versions of FIX at different rates with a focus on specific needs," says Atwell. If a firms is focused solely on equity-order flow, he says, FIX 4.0 or 4.1 is probably doing the trick. However, if a firm is active in foreign-exchange trading, 4.2 is going to be required. For fixed income, he says, "you need to look at 4.3 and 4.4."

Atwell says that American Century has 95 "FIX sessions" or open lines of communication that are available to transmit FIX messages. That does not mean the investment manager is connected with 95 different sell-side firms because American Century connects with a number of its broker/dealer counter parties over multiple FIX sessions. Some of those sessions, he says, are focused on communicating FX messages, some Asian equities, some European equities, some fixed income, etc.

For a firm that is looking to become 4.4 enabled, Atwell suggests first assessing what it has in its shop. A look at the order-management system is a good place to start, he advises. If the system is vendor provided, Atwell suggests approaching the provider and starting talks focused on having the vendor adopt 4.4. If the system is proprietary, he says it's a good idea to try and leverage any FIX capability that a firm already has, such as FIX capabilities on the equities side that can be built upon for fixed income -- it will be a process he terms "extend and leverage."

"What do you have? What do you want to do? Then you will be prepared to identify and figure out what is the best way to get there," says Atwell.

An advantage that FIX may have as it looks for traction in the fixed-income markets is that it is not competing with any dominant standard currently being embraced. "FIX is addressing a lack of automation rather than a type of automation," says Atwell.

FIX 4.4 is available for download from the "Specifications" section on the www.fixprotocol.org Web site. The second draft of 4.4 is scheduled for release on March 24 with the final release on April 30.

Major changes in FIX 4.4:1) Incorporates proposed changes from the BMA/FPL (Bond Market Association/FIX Protocol Limited) Global Fixed Income committee's Gap Analysis: * Added/enhanced support for Repurchase Agreements, European Sovereign Debt, European Corporate Debt, and Commercial Paper FI products. * Quoting messages enhanced to support FI negotiation process. * Minor enhancements to single and multi-leg orders. * Enhanced Allocation and Trade Capture Report messaging to support 3rd party FI reporting. * Added new message to support Booking Report.

2) Incorporates proposed changes from the Futures Industry Association and FPL Global Derivatives committee: * Enhanced Allocation messaging to support street-side listed futures and options requirements (i.e. Clearing Firms). Added new messages to support "allocation claim" or response. * Enhanced Trade Capture Report messaging to support block trade and exchange for physical (off floor) trade reporting for listed futures and options markets. * Added new messages to support Position Maintenance.

3) Overall enhancements to Allocation and Trade Capture Report messaging.

4) Overall enhancements to multi-leg instrument support.

The ZIP file includes 7 volumes and Release Notes and can be downloaded from: www.fixprotocol.org/cgi-bin/Spec.cgi?menu=4

Comments can be made under Discussion, "FIX 4.4 Changes". You may click on "Edit Profile" in order to subscribe to postings within this discussion group.

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