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Sell-side: How FIX is changing post-trade FX

Alex Walker
Alex Walker
Head of Post Trade, FX

Post-trade FX activities have been dramatically simplified by the FIX interface, allowing sell-side participants to navigate challenges such as liquidity fragmentation and to reduce total cost of ownership (TCO).

  1. The FIX protocol has been widely used in equity and fixed income, but is now increasingly popular, and powerful, in the FX world.
  2. Recent FX developments, such as MiFID II and the Global Code of Conduct, are driving industry-wide, post-trade trends.
  3. Banks of all sizes are using FIX to navigate increased liquidity fragmentation, reduce their TCO and meet complex compliance requirements.

As the largest financial market in the world, foreign exchange (FX) trading boasts a diverse selection of execution venues which have lowered transaction costs while increasing market liquidity and participation.

However, structural changes in recent years have reduced the depth of available liquidity and created greater market fragmentation. As a result, obtaining firm and tight data on trade executions, bilateral trading agreements, trading venues and pricing is challenging to nail down.

This is not only difficult for FX traders.

The middle-office, back-office and compliance teams also need to efficiently access and share FX trading data for risk management, compliance and counterparty processing. However, for many firms, gathering the right data and securely retrieving it is a huge challenge.

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Simplifying the FX trading lifecycle

Once participants trade on those platforms, downstream position keeping and risk management systems need the right trade information in real time.

In addition, compliance needs to be able to view conversational deals, confirm orders as agreed, see real trades (tickets), and honor obligations.

Designed to capture notifications for trades executed on broker networks, bank platforms, ECNs and FX venues globally, Trade Notification (TRTN) is one of the FX industry’s largest trade notification networks and processes millions of messages each month.

Increasingly, participants are adopting the hosted Financial Information Exchange (FIX) interface to connect their downstream systems to TRTN.

The FIX protocol has been widely used in the equity and fixed income spaces for years. However, it is now becoming increasingly popular, and powerful, in the FX world as it enables consolidation into a single pipe.

This encrypted, confidential trade data means it’s immutable and free from potential manipulations.

Talking about technology as a concept can be exciting. But when the concept transitions into the real world, it makes an even greater impact.

The clear trend we have observed is that a number of global and regional banks are increasingly adopting these solutions for similar reasons and getting comparable benefits.

The benefits of implementing FIX

Connect seamlessly and singularly with counterparties around the globe with Trade Notification

International bank adoption

A leading international bank faced both technology and compliance challenges with processing its global FX trading activities.

Strict internal electronic communication surveillance policies and the conversational nature of FX dealing meant that any platform it used would be classified as a non-secure instant messaging system incapable of capturing and auditing all communication to and from external parties.

In addition, the bank relied on a relatively complex technology infrastructure, which included numerous deployed adaptors and third-party integration.

These adaptors required information to be routed to compliance and back-office systems, which increased the bank’s own infrastructure obligations and operational support.

The bank’s compliance team embraced a solution that combined a trade notification FIX interface for tickets and conversational chat to address the bank’s challenges and meet infrastructure obligations.

By adopting the FIX post-trade feeds over the trade notification service, the bank is now able to dramatically simplify the post-trade processing of its FX trading activities on over 50 FX dealing codes across more than 30 countries through a single pipe.

In addition to meeting its strict internal compliance requirements, the bank reduced its total cost of ownership (TCO) and took advantage of:

  • Encryption and rich functionality for complex trade scenarios.
  • Flexible data aggregation and segregation mapping to business models.

“The bank is also consuming the additional MIFID fields to enable it to meet its reporting obligations, a project that is more manageable when their STP is from one pipe.

The bank is also looking to leverage this infrastructure to access more liquidity sources that will be straight-through processed via the same connection. This is a prime example of an ongoing wider industry trend as banks seek to consolidate post trade processes.

Regional FIX solutions

While the FIX trend was originally prevalent in international banks, increasingly regional solutions for around six to 10 codes are being adopted.

The combination of the TRTN FIX Interface and the Deal Tracker FIX Archiver is enabling them to store MIFID II-related information locally, and operate in a more transparent regulatory environment.

Most importantly, it ensures the technology is simplified while trade detail is never missed.

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The effects of recent FX industry changes, such as the implementation of MiFID II, along with voluntary principles from the Global Code of Conduct, have combined to drive an industry wide, post-trade trend.

Banks, both international and more recently regional, are looking to navigate increased liquidity fragmentation, reduce their TCO and meet complex compliance requirements.

By taking advantage of a solution which was previously only used in the equities and FI space, the FX trading life cycle is being simplified to enable sell-side market participants to successfully tackle industry challenges.

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