FIX Trading Community, the non-profit industry-driven financial trading standards body, has published updated guidelines for the electronic trading of bonds and swaps using the FIX messaging standard.
The guidelines have been designed to enable market participants to benefit from cost effective and efficient connectivity to the growing number of bond trading platforms, emerging swap execution facilities (SEFs) and upcoming organised trading facilities (OTFs) set to launch across the US and European markets.
As regulatory requirements, in the form of Dodd Frank, MiFID II and Basel III, seek to enhance transparency, reduce risk and increase capital requirements, a new fragmented market structure for fixed income trading is emerging. The original swap guidelines (launched in March 2012) and cash bond recommendations (released earlier this year), were developed to enable market participants to connect to, and ultimately trade, the most liquid products (cash bonds, credit default swaps and interest rate swaps) on the new venues in a standardised and cost-effective manner.
As FIX minimises the financial implications of market entry, offers increased choice by reducing switching costs and enables considerable connectivity efficiencies, the guidelines have witnessed rapid take-up. They have been adopted by almost all SEFs planning to launch in Q4 2013 and once the details pertaining to OTFs are finalised within MiFID II, a similar trend is expected in Europe. Additionally, the cash bond guidelines are being actively implemented by venues in-line with technology upgrades and investment cycles.
As the regulations themselves and the financial instruments they will encompass have been further clarified, and new trading trends have emerged, FIX Trading Community has continued working with existing and emerging platforms, broker dealers and the buy-side community to extend the recommendations. Ensuring they explain how FIX can be used to trade the wider range of products now covered by these requirements.
The updated swap guidelines have now been extended to also support:
• Different permutations of cross-asset trades used within the fixed income markets
• The latest regulatory developments impacting fixed income trading including the Central Counterparty Clearing House and Legal Entity Identifier (LEI) initiatives
• The electronic booking of voice trades
Additionally, the recommendations also provide standardised guidance on market conventions, reducing the risks associated with misinterpretation by trading partners.
The latest version of the cash bond guidelines have now also been extended to support:
• The US credit markets and the two step negotiation process for spread trading
• US Treasury trading on wholesale markets and the auction trading model
• Post-trade allocations for fixed income trades
• Firms wishing to book voice trades electronically
The updated cash bond recommendations explain how the guidelines can be used with FIX 4.4, in addition to the very latest version of the messaging standard.
As these regulations continue to be clarified, the guidelines will be further enhanced to meet emerging requirements.
Sassan Danesh, co-chair of the FIX Trading Community global fixed income subcommittee and managing partner of ETrading Software, says: “FIX has played a huge role in revolutionising the equity markets, enabling new trading venues to establish themselves easily, offering cost-efficient connectivity to trading partners across a fragmented marketplace. By encouraging the use of FIX for fixed income across the broad range of financial instruments covered by the updated guidelines, we hope to witness similar results in this market, beginning with the SEF go-live later this year.”
Daniel Marcus, chief executive of Trad-X, a platform that has adopted the guidelines and an active participant in the global fixed income subcommittee, says: “Being able to contribute to the guidelines development has proven very valuable. The process provided us with a detailed insight into how they were shaping up so we could start to consider their implementation into our trading platform ahead of time with our customers. As the guidelines have been designed so they accurately apply to existing business workflows, this has significantly eased the implementation process for the marketplace as a whole. Trad-X is pleased to have implemented the guidelines as it has eased the development burden on our customers."
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