FIX Trading Community has published recommended guidelines for the efficient electronic communication of client entitlement information between broker-dealers and the emerging swap execution facilities (SEFs).
The guidelines explain how the currently manual business process that will be required to transfer details about client relationships and their associated permissions can be carried out in an electronic, automated and standardised manner, presenting the potential to reduce operational risk and generate considerable efficiency gains and cost savings.
As regulatory efforts such as the US Dodd-Frank Act and the EU’s MiFID II seek to increase market stability, the structure of the OTC derivatives and OTC fixed income markets is undergoing significant change, with a more electronic and fragmented environment emerging. Quarter four 2013 will witness the launch of the first SEFs in the US market, and in Europe, as the rules relating to MiFID II are further clarified, OTC trading will continue to migrate to multilateral trading platforms (MTFs), while organised trading facilities (OTFs) are expected to surface.
The trading platforms used by broker-dealers to trade on these emerging venues will need to understand important client information such as:
· Which clients are able to trade with which counterparties
· The types of trades they can conduct
· How their trades should be cleared.
The new guidelines published by FIX Trading Community explain how this information, along with other details pertinent to the client relationship, can be communicated between the broker-dealers and the SEFs in an automated manner using the FIX messaging language. The guidelines set out how a standardised approach to communication can bring increased efficiency, speed and reliability to the process.
These guidelines build upon previously-released best-practice recommendations developed to enable market participants to use FIX to trade swaps and cash bonds on existing and emerging trading venues. These guidelines are now being rapidly adopted by market participants, with almost all new SEFs planning to offer access using FIX.
Sassan Danesh, co-chair FIX Trading Community global fixed income subcommittee and managing partner, Etrading Software, says: ‘Communicating client enablement information is currently a very labour-intensive process, and as each trading relationship will need to be validated on Day 1 of the new SEFs going live, the impact of standardised electronic procedures could be huge - significantly speeding up the enablement process and considerably reducing the potential for errors.’
Andrew Miller, executive director, e-trading client services, JP Morgan, says: “Traditionally, enablement of clients to trade electronically entails significant manual effort, with the ensuing consequences for the cost, speed and accuracy of client set ups. These guidelines will provide client entitlement in a consistent manner across SEFs and will support stronger client service, control and agility. Without such an approach, we would need to provide these details in a multitude of different ways.”