the case for using fix in the post execution space and how to implement john wilson director
TRANSCRIPT
The case for using FIX in The case for using FIX in the post execution space the post execution space and how to implementand how to implement
John WilsonJohn Wilson
DirectorDirector
AgendaAgenda
Confirmations - The current Confirmations - The current positionposition
Why change to FIX confirmationsWhy change to FIX confirmations How to changeHow to change When to changeWhen to change Further opportunitiesFurther opportunities
Current positionCurrent position
Majority of firms have automated Majority of firms have automated confirmation processingconfirmation processing
Environment dominated by a few Environment dominated by a few providers via proprietary infrastructureproviders via proprietary infrastructure
Costly to use with charge usually levied Costly to use with charge usually levied on both buy and sell sideon both buy and sell side
Industry efforts to change have Industry efforts to change have floundered (GSTP, VMUs)floundered (GSTP, VMUs)
Current buy-side Current buy-side environmentenvironment
Fix Engine
Fix Engine
OMSOMS
ConfirmationMatching
Engine
ConfirmationMatching
Engine
Confirmsservice
ConfirmsserviceE
TL
ET
L
ET
LE
TL
Orders Orders
NOE NOE
Confirmation Confirmation
Affirmation Affirmation
Allocations
Fix v4.4Fix v4.4 Released in April 2003Released in April 2003 Enhanced coverage of allocation and Enhanced coverage of allocation and
confirmation processingconfirmation processing Network and vendor neutral protocolNetwork and vendor neutral protocol Open standard offered on many networksOpen standard offered on many networks Processing allocations or confirmations on a Processing allocations or confirmations on a
FIX connection incurs no additional costsFIX connection incurs no additional costs BUT its not a perfect substitute for existing BUT its not a perfect substitute for existing
services…..services…..– Standing instructionsStanding instructions– Non repudiationNon repudiation
Awaiting regulatory approval re disclosures Awaiting regulatory approval re disclosures and so forthand so forth
Why change to FIX Why change to FIX confirmationsconfirmations
MONEY (Spend of > $75,000 pa on MONEY (Spend of > $75,000 pa on confirmations not uncommon)confirmations not uncommon)– Confirm chargesConfirm charges– VAT/Sales taxVAT/Sales tax– Connection chargesConnection charges– Maintenance/SubscriptionsMaintenance/Subscriptions
Industry generates ≈ 250,000 electronic Industry generates ≈ 250,000 electronic confirms outside USA each dayconfirms outside USA each day(≈ 250,000 *$1 *2 *230 = $115m pa)(≈ 250,000 *$1 *2 *230 = $115m pa)
Current model is disconnected from the Current model is disconnected from the trading spacetrading space
Not forgetting……Not forgetting……
Fix can encompass the automation of Fix can encompass the automation of allocation processingallocation processing
Communication of orders and Communication of orders and executions can be automated via FIXexecutions can be automated via FIX
FIX works for multiple asset classesFIX works for multiple asset classes Cost is shared across the entire Cost is shared across the entire
processprocess
How to changeHow to change
Solution proposed isSolution proposed is– Non intrusive with minimal change to Non intrusive with minimal change to
existing confirmation infrastructureexisting confirmation infrastructure– Addition of FIX confirmation capability Addition of FIX confirmation capability
and NOT immediate removal of and NOT immediate removal of existing servicesexisting services
– Not dependent on front office Not dependent on front office decisions on using FIX (but helps to decisions on using FIX (but helps to consult)consult)
Recommended buy-side Recommended buy-side environmentenvironment
Fix Engine
Fix Engine
OMSOMS
ConfirmationMatching
Engine
ConfirmationMatching
Engine
Confirmsservice
ConfirmsserviceE
TL
ET
L
ET
LE
TL
Orders Orders
NOE NOE
Confirmation Confirmation
Affirmation Affirmation
Allocations Allocations
ConfirmationsAffirmations
Confirmations
How to changeHow to change
Operating in the new environmentOperating in the new environment– Run a separate FIX session on the same Run a separate FIX session on the same
connection for allocations and confirmsconnection for allocations and confirms– Get FIX engine to do the transformation, Get FIX engine to do the transformation,
subject to error handling facilitiessubject to error handling facilities– Matching engine to prefix confirm Matching engine to prefix confirm
source on messages to enable return source on messages to enable return routingrouting
– Migrate with your largest brokers first Migrate with your largest brokers first (savings come quicker and they will be (savings come quicker and they will be better equipped)better equipped)
How to changeHow to change
Our recommendationsOur recommendations– Tell your main brokers you will want to Tell your main brokers you will want to
receive FIX confirmation in near futurereceive FIX confirmation in near future– Select a FIX engine with a pricing Select a FIX engine with a pricing
structure reflecting your plansstructure reflecting your plans– Discuss with your matching engine Discuss with your matching engine
vendor introducing additional vendor introducing additional confirmation sourceconfirmation source
– Either bring forward your SWIFTNet Either bring forward your SWIFTNet migration or look to alternate network migration or look to alternate network vendorvendor
When to changeWhen to change
You need to indicate interest to You need to indicate interest to your brokers NOWyour brokers NOW
The lead time for “first mover” The lead time for “first mover” brokers is 4-5 months from interest brokers is 4-5 months from interest being registeredbeing registered
Most major brokers could be ready Most major brokers could be ready in 5-6 months from nowin 5-6 months from now
Your project will take about 3 Your project will take about 3 months in duration for < £20kmonths in duration for < £20k
Settlement instructionsSettlement instructions
FIX does not address the SSI FIX does not address the SSI facilities most firms rely uponfacilities most firms rely upon
Current SSI facilities remain costly Current SSI facilities remain costly with high errors rates reportedwith high errors rates reported
We think alternatives could rapidly We think alternatives could rapidly appear if you concur with the appear if you concur with the concept(s)concept(s)
““STP Lite”STP Lite”
Model 1Model 1– Custodians broadcast SSI updates directly Custodians broadcast SSI updates directly
to the buy-side firms to append to (FIX) to the buy-side firms to append to (FIX) confirmation acceptancesconfirmation acceptances
Model 2Model 2– SWIFTNet hub enriches messages in real-SWIFTNet hub enriches messages in real-
time from custodian SSI databases (that time from custodian SSI databases (that were originally constructed for GSTP)were originally constructed for GSTP)
Model 3Model 3– Buy side firms notify sell side of which agent Buy side firms notify sell side of which agent
to deal with and then passes “conversation” to deal with and then passes “conversation” over (Not a FIX capability yet!)over (Not a FIX capability yet!)
Useful materialUseful material
““Confirmations cost calculator”Confirmations cost calculator” ““How to FIX it Guide”How to FIX it Guide” ““Pitfalls of implementing FIX”Pitfalls of implementing FIX” ““FIX – The business imperative”FIX – The business imperative” FIX Protocol version 4.4FIX Protocol version 4.4 This presentation!This presentation!
www.CityiQ.comwww.CityiQ.com
SummarySummary FIX confirms will be able to FIX confirms will be able to
substantially eliminate your substantially eliminate your confirmation costsconfirmation costs
Solution can be implemented quickly Solution can be implemented quickly and on a bi-lateral basisand on a bi-lateral basis
Re-use of existing facilities positively Re-use of existing facilities positively encouragedencouraged
Some benefits will extend upstream if Some benefits will extend upstream if not already FIX enablednot already FIX enabled
Settlement instructions is the next Settlement instructions is the next challenge. Sign up today to make the challenge. Sign up today to make the world a better place!world a better place!
CityIQCityIQ can help can help youyou with with
Developing Developing youryour business case business case
Aiding Aiding youryour prioritisation of requirements prioritisation of requirements
Providing guidance on technology Providing guidance on technology
solutions to suit solutions to suit youryour needs needs
Planning and implementing Planning and implementing youryour solution solution
Automating and refining Automating and refining youryour processes processes
Developing Developing youryour control environment control environment
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