the case for using fix in the post execution space and how to implement john wilson director

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


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


Engine


Engine

Confirmsservice

ConfirmsserviceE

TL

ET

L

ET

LE

TL

Orders Orders

NOE NOE

Confirmation Confirmation

Affirmation Affirmation

Allocations Allocations

ConfirmationsAffirmations

Confirmations


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)


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

CityIQ LimitedCityIQ Limited

68 Lombard Street68 Lombard Street

LondonLondon

EC3V 9LJEC3V 9LJ

United KingdomUnited Kingdom

www.CityIQ.com www.CityIQ.com

T: +44 (0) 207 477 6580T: +44 (0) 207 477 6580

F: +44 (0) 207 477 6768F: +44 (0) 207 477 6768

E: [email protected] E: [email protected]

the case for using fix in the post execution space and how to implement john wilson director

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