Practitioner’s view – FIX standards in Post TradeGiven by - Alvin MullanDirector, UBS

Nov 2004

User perspective for using the modelsGiven by - Alvin MullanDirector, UBS

Nov 2004

3

UBS’s participation with industry groups

Our competitors are doing it

Our clients want it

We need to do it

UBS – SWIFT & OMGEO

ISITC, RDUG, QDI….

FAWG & STPLite/SSIFresh

This presentation aims to- summarise how FIX can be used in the Allocation and Confirmation

process

4

Pre trade allocation

Pre allocated order – FIX New Order Single

When Allocation Account details need to be communicated prior to execution in certain markets

Issues with Pre allocated orderAmend scenarios complicated

1 Account

660 AcctIDSource

581 AccountType

589 DayBookingInst

590 BookingUnit

591 PreallocMethod

70 AllocID

78 NoAllocs

79 AllocAccount

661 AllocAcctIDSource

736 AllocSettlCurrency

467 IndividualAllocID

component block <NestedParties>

80 AllocQty

5

Model 1 – Buyside wants to be involved in SSIs

Buyside Sellside

Agent

SSI Database

Global Custodian

Agent

SSIs

CSD

Affirmation

THIS IS BEST SUPPORTEDFIX 4.4 Allocation

FIX 4.4 or MT515 for Confirmation

Allocation + SSIs

1. Order (ClOrdID)

2. Order Details (AvgPx)

3. Accounts

SSI is used as sent

Match?

Confirmation - 1 per account + SSIs X2

1. Financials

Match?

6

Model 1 - Strengths and weaknesses

Cost saving- Reduction in settlement failures- Less manual intervention- Less effort to maintain SSIs

Industry take up- Time to change- Adoption of FIX 4.4- But some middleware suppliers can provide solutions to help

Matching- In-built matching from FIX order & execution lifecycle (inc. ref nos)- No need to match buyside SSI

Reduced Risk- Faster turn round on allocations- Lower error rate

PSET- Broker is instructed where settlement is to occur- If instructed to use Euroclear, can match immediately

7

FIX 4.4 allocation message

Level 0 Level 1 Level 2

Message Body

Contains 1

Message Definition Defines type and purpose of message and contains

message identifiers Contains Many

Orders

Optional repeating group identifying the orders being booked and/or allocated together with their price and quantity being booked/allocated. This is mandatory in FIX but is currently should have at least one occurrence on a message to UBS.

Contains 1 Booking Unit

Defines the booking unit being booked and/or allocated (e.g. security, side, price, trade date) TransactTime is included here although viewed as being part of the Message Definition section.

Contains 0 or many

Allocation Details

Contains 1 Commission Details

Fields defining commissions (either a rate or an absolute value)

Contains 0 or one

Trade Net Monies Optional fields defining net monies and settlement amount

Contains 0 or many Fees Optional repeating group defining fee and expense details

Contains 0 or many

Settlement Instructions

Optional repeating group defining buy and/or sell side settlement instructions. See section below.

8

FIX 4.4 confirmation message

Level 0 Level 1

Message Body Contains1 Message Definition Defines type and purpose of message and contains message

identifiers Contains1 Firm Identification &

PSET

Contains1 Instruction Identification

Contains1 Instrument Detail Contains1 Trade Identification Text is in this group although it would be better placed in

Message Body Contains1 Trade Net Monies Contains 0 or many

Settlement Instructions

Repeating group defining buy and/or sell side settlement instructions

Contains1 Commission Details Fields defining commissions (either a rate or an absolute value) Contains 0 or many Fees Optional repeating group defining fee and expense details

9

SSI baggage in FIX

ISO 15022 Def SettlPartyIDRole <784>

SettlPartyIDSource <783>

SubIDType <786>

PSET 10 = Settlement Location (PSET) B = BIC

DEAG/REAG 30 = Agent or 4 = Clearing Firm (But only 1 of. Pilot Client will be using value of 30.)

B = BIC 10 = Securities Account Number 22 = Securities Account Name 17 = CSD participant/member code

DECU/RECU 28 = Custodian or 31 = Sub-Custodian (But only 1 of. Pilot Client will be using value of 31.)

B = BIC 10 = Securities Account Number 22 = Securities Account Name 11 = Registration number 14 = Registration name 17 = CSD participant/member code

BUYR/SELL 27 = Buyer/Seller

10

Model 2 – Buyside opt outBuyside Sellside

Agent

SSI Database

Global Custodian

Agent

SSIs

CSD

Affirmation – Needed?

Confirmation - 1 per account + SSIs X2

Allocation + Custodian + Financials

1. Order

2. Order Details (AvgPx)

3. Accounts

4. Financials

Match?

11

Model 2 – Step by step

Parent OrderBuy 1000 Nokia FIX New Order - single

ClOrdID= AM1, Buy, 500, Nokia

FIX Execution Report

ClOrdID= 1, OrderID=Brok1, Comm=8bp

Child Order receivedand Commission

returned

FIX New Order - single

ClOrdID= AM2, Buy, 500, Nokia

FIX Execution Report

ClOrdID= AM2, OrderID=Brok2, Comm=8bp

Single Allocationfor Parent Orderover 3 accounts

FIX Allocation

ClOrdID= AM1, AM2, Buy, 1000, Nokia,Account= Acc1&GC1. Acc2&GC2, Acc3&GC1

FIX Confirmation or MT515

Account= Acc1. SSI *2

Account= Acc2. SSI *2

Account= Acc3. SSI *2

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Model 2 - Strengths and weaknesses

Cost saving- Reduction in settlement failures- Less manual intervention- Less effort to maintain SSIs

Industry take up- Can be done now using FIX 4.0/4.2 Allocation message with MT515 Confirm- But some middleware suppliers can provide solutions to help

Matching- In-built matching from FIX order & execution lifecycle (inc. ref nos)- Broker obtains Buyside SSI from local database/Custodian- Financials can be provided on FIX Allocation message enable Sellside match

Split holdings- May lead to split holdings for dual listed stocks- E.G. Nokia traded in Germany, Sweden….- On sell, may need auto-transfer of stock arrangements with Custodian- Or on-going reconciliation/management

Reduced risk- Faster turn round on allocations- Lower error rate

PSET- Broker chooses PSET based on defaults for Buyside and Place of Execution- When required, broker enquires from identified Custodian

13

Model 2 – Can be done now

• Insulation- Third party “middleware” suppliers can convert single output format from OMS into different Broker requirements- Same can be used to process confirm

• Broker maintains SSIs- Broker will require relationship with Custodians for SSIs- Once SSI is held by Broker, how is a change communicated

• Buyside matching- Can get Broker to do the matching removing the need to have and maintain matching processes.

• SWIFT confirm- Already used in many back office environment

• FIX allocation- Send FIX 4.0/4.2 Allocation- Does not need an expensive OMS upgrade to FIX 4.4