We know a technology has achieved ubiquity and become something we can't do without when we aren't even aware that it is there. The Financial Information eXchange (FIX) protocol - a messaging standard for the real-time electronic exchange of securities transactions - now is at that stage, at least in U.S. equities, and it rapidly is securing toeholds in the rest of the securities world.
FIX is equally at home in fixed income, foreign exchange (FX) and derivatives such as equity options. As more firms standardize on FIX, the implications for trading efficiency, risk control and - perhaps most interesting - fundamental organizational change at some of the world's largest financial institutions are as substantial as they ever have been.
FIX has offered the capability to trade multiple asset classes for close to six years. But the level of electronic trading in nonequities areas did not necessarily warrant the advent of a standard.
Now, however, the increasing level of cross-border trading means that there also is a growing need to settle such transactions - many asset managers now need to settle their equities transactions with foreign cash, and that means FX trades, in many cases, for firms that have not done so in past years.
"We've seen a tremendous need for FIX and FX interfaces, and we are hoping to put more focus into servicing the requirements and needs of that infrastructure," says Scott Atwell, head of the global steering committee at FIX Protocol Limited (FPL) and manager of FIX trading and connectivity at American Century Investments. "The degree that traders don't know they are using FIX is nirvana. It is the HTTP of Wall Street - the fact that it is there and just works is its magic."
A flurry of consultant reports have detailed the drivers behind FIX and the standard's global adoption rates. According to a TowerGroup survey performed for FPL, about 65 percent of 153 global buy-side firms expect to be using the most recent version of FIX, version 4.4, for fixed income, derivatives and FX, within two years. However, previous versions, such as 4.2, continue to dominate in the equities arena.
"Having already done equity implementations, the large firms are adding other asset classes to their trading desks, whereas midlevel and smaller firms are still getting more comfortable with electronic trading, starting with equities," observes Peter Delano, an analyst with Needham, Mass.-based TowerGroup.
Since FIX is an open standard rather than a corporate product, the move to the latest version is a case of some firms' desires to trade a wider range of products with a single standard more than a case of FPL ceasing to "support" 4.2, explains Atwell. Still, many firms must be convinced of the efficacy of using a single standard in order to commit to upgrading.
It is discrepancies such as these that have prevented FIX from being adopted universally; rather, adoption has moved in fits and starts. Among the barriers to FIX's adoption are the expense of integrating a FIX engine with an order management system (OMS), limited technology resources coupled with other IT priorities and simple technophobia.
Still, at firms such as American Century Investments, which was one of the first to adopt the protocol, "FIX for FX already seems like a distant memory," says Howard Tai, head of currency management for the Kansas City, Mo.-based firm. "But our firm is not typical," he adds. "We have a vision of what the world should look like. Typically people are reluctant to change, and any kind of technology overhaul is expensive. But when you educate people ... they see the logic of using a common set of languages across the board. The primary driving force has to reside with the buy side."
Although much of the attraction of FIX lies in its utility, lately, more than pure ubiquity, FIX's power as a force for change is what is most exciting about the standard, according to industry observers. At buy-side firms, where traders find themselves increasingly being tasked to use multiple trading tools and manage more relationships, FIX, when used across multiple asset classes, can aid tremendously in time management.
"If you jump from one market to the other all day, even just to trade a derivative in the same asset class, your attention is going to be split," Tai explains. "You really hope that the technology will help you handle your day-to-day choices better."
At sell-side firms, the change wrought by FIX may be even more dramatic. The model of dividing brokers into business silos that amassed expertise centered on asset classes was intended to maximize staffing efficiency and concentrate knowledgeable people in the same physical area. But that essentially was a pre-electronic trading model.