Buy-Side Traders Will Send Letter Urging Sell Side to Adopt Fixed Income Protocol

Buy-side supporters of the new FIX 4.4 protocol are planning to write a letter to the heads of sell-side fixed- income trading desks, urging them to implement the industry-wide communications standard, according to Gunter Heiland, vice president and senior credit trader in the U.S. fixed-income trading group at JP Morgan Fleming Asset Management. The comment was made at The Bond Market Association's (BMA) Fixed Income Summit & Expo on E-Commerce and Technology held last Thursday in response to a question from an attendee who accused the panel of spinning its wheels in terms of helping the industry to adopt a common communications protocol based on the Financial Information Exchange.

"Why don't you come up with a solution?," asked Craig Berman, during the Q&A session. Berman, who identified himself as a former Gruntal employee, says the BMA has been talking about a standard protocol for the past four years and that it's going in circles. He suggested that the FIX Protocol Organization and the BMA do something to address " the chicken and egg problem." Berman said he knows of a lot of people who are sitting around doing nothing who are supposed to be FIX developers.

Acknowledging that there has been slow progress, Heiland, who trades emerging- markets debt and coordinates technology for the short-term desk, said that the group of buy-side traders "is drafting an open letter that says what our goal is. We're getting a list of front-office people on the buy side who would sign the letter. We're about a week away from sending it to people who trade actively every day," he adds. The letter will be sent to relationship managers--another word for institutional sales. It will say that "we hope to be compliant on this date and want to trade buys or sells," he said. At this point, sales has the ammunition to go to their managers for investment," he says.

Daniel Doscas, senior vice president in the fixed-income e-commerce department at Lehman Brothers, who is Co-Chairman of the FIX Protocol Limited Fixed Income Working Group, says the message is going to come "from the trading desk heads. Noting that all the fields for the fixed-income message tags, ranging from indications of interest to allocations, had been agreed upon for some time, Doscas adds: the message will be: "We agree on the technology, let's move forward."

George Kledaras, founder of Javelin Technologies, a developer of FIX-compatible trading systems, says not much is happening in fixed income yet, because it is too early.

Fix 4.4--the next version of the protocol, which supports electronic trading in nine-electronically-traded fixed income products-- is still under development. According to Dean Kauffman, a vice president of TradeWeb LLC, says a draft of FIX 4.4 will be posted on the FIX Protocol Web site (www.fixprotocol.org) to download and comment on by the end of the first quarter of 2003. Kauffman heads up development of the fixed-income trading protocols through the BMA and Fixed Income Working Group initiatives.

Among the benefits of the FIX 4.4 protocol are connectivity between buy- and sell-side trading desks, scaling to handle increasing volumes and customers and reducing costs associated with achieving straight-through processing. But in order for the industry to reap the benefits of FIX experienced by the equity markets, enough buy- and sell-side counterparties as well as ECNs and vendors must adopt it. Reaching this critical mass while the securities industry is in a slump, slashing IT budgets and technology expenditures, could be a challenge. However, the panel did not address the cost of implementation.

An attendee during the Q&A from an earlier session titled "The View from the Buy Side" suggested that the BMA and FIWG members, offer some guidance on how much time it would take a small shop versus a large shop to implement the FIX protocol in fixed income.

Panelists assured attendees that the new fixed-income standard has the support of electronic-trading systems and order management system vendors, pointing out the the major bond-trading systems--TradeWeb and MarketAxess, as well as Charles River Development Corp., Bloomberg L.P., and Javelin Technologies Inc., represented on the panel were committed to implementing the protocol. Jim Rucker, head of operations, finance at MarketAxess Corporation, which operating an electronic trading system for credit instruments, says his firm is working with the protocol. "It's not going to happen overnight. The reality is yes, it's going to happen."

According to JP Morgan's Heiland, progress is already happening. Buy and sell-side firms are "doing small proof of concept" projects. For instance, when JP Morgan does a bond trade, Merrill Lynch sends a message that is integrated into our blotters, and it changes colors," he says. Every time JP Morgan does a Treasury trade with Salomon Smith Barney, if there's a break within 10 seconds of doing the trade, the trade changes color. He added that TradeWeb, has been live since early 2002 using FIX to send post-trade reporting and allocations. Pre-trade messaging is currently being tested with a number of customers in the United States and abroad."These are small onesies, twosies. It's taking too much time to talk to one desk. We're ready to do the whole thing with one shot," says the bond trader. 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