Swift - the financial-services cooperative known for secure, reliable messaging standards - is jumping into the front-office business of trade-order routing.
"In order to increase STP rates, we need to move forward in the trade lifecycle," says Matthew Fox, program manager of SwiftNet FIX. "Just having the back office, the payments, settlement, clearance section isn't enough. We want to capture the trade at the point of origin. And that's what the FIX-messaging service is all about."
Swift launched the service last December. On Sept. 3, it announced over 40 buy- and sell-side firms had agreed to participate in its early adopter program.
But some global brokers are concerned about the performance of the network, specifically about whether the FIX-messaging service is going to be fast enough for electronic trading.
Tim Wildenberg, managing director and global head of electronic execution at UBS Investment Bank, says he was told by attendees that concerns were voiced at a U.S. user-group meeting about eight months ago.
A sell-side professional at the U.S. meeting asked how long it would take to send an order round-trip from the buy side to the sell side, then to an exchange for execution and back again to the buy side. In response, a Swift official indicated it would take six or eight seconds. The following week, a SwiftNet user group meeting was held in London, where Swift officials were asked to comment on the rumor of eight seconds.
One investment banking source requesting anonymity, who attended the London meeting, says Swift made a public presentation where it said a round-trip order would take eight seconds. "This is unacceptable," says the source, an expert in trading technology whose firm serves hedge funds and other types of institutional customers.
At the moment, FIX messaging over an IP network is measured in sub-seconds, and hedge funds will not trade through a network or a sell-side firm if they cannot execute trades in sub-seconds. Hedge funds closely measure a broker's delivery time, says the source.
Fox, who says he was not at the London meeting, refutes the eight-second figure. He says the time it takes for an order to go from a buy-side to a sell-side firm is under a second. "We don't really exceed a second. We monitor this on a monthly basis," he says.
However, Fox is only measuring the piece between the buy side and the broker. He does not measure the time it takes for the order to reach an exchange and return to the buy side with an execution report.
"We have no control over what happens to these messages once they leave our network," says Fox, who explains that once the brokers receive the order via SwiftNet they use a different network to route the order to an exchange. "It all depends on the instructions to the broker," he adds. A customer can say to work the order on an exchange, or enter a direct-access order.
Given all these factors, Fox says it would take half-a-second or 1.5 seconds for an order to reach the broker over SwiftNet. "Typically, you're in the one-second range which is acceptable for most types of activity," he adds. Under the worst possible trading scenario, it takes under two seconds, according to Swift's service-level agreements (SLAs) with FIX customers, Fox says.
When told of Fox's reply, the investment-banking source says, "Two seconds is still far too slow from end-to-end. Since the trade message goes two ways, this becomes four seconds, and if it is an automatic execution, it still has to pass through a broker's systems to the exchange and back again. Realistically, this is therefore at least five seconds round-trip. Swift (has) produced a presentation saying eight seconds, so they are now worried about this issue."
Speculation may have arisen because Swift has not released hard data spelling out its performance metrics, notes Wildenberg.
Fox, drawing on operations statistics, says indications of interest (IOIs) typically take half a second or somewhere in the 400 to 500 millisecond range, while orders take around 900 milliseconds. "That sounds reasonable, but not if you want to do index arbitrage," responds Wildenberg.
However, Wildenberg agrees with Fox, "round-trip times are slightly misleading. They depend on the stock, the market, the order instructions, the broker, (and) distances involved between the buy side and the broker." Some orders could take days to execute, for instance, when clients send multi-day orders, he adds.