Axes Falling On Bond Trading: FIX Trading Community

The FIX Trading Community, the industry association that manages the world’s trading language, the FIX Protocol, has committed to working with the global bond trading community and the International Capital Market Association (ICMA) to improve the efficiency and quality of bond trading.

The joint effort, spearheaded by the FIX Fixed Income Axe Standards Working Group, will address a specific ongoing issue for global buyside firms around ‘axes’ – a traders’ indication of interest in buying or selling a security.

The growing prevalence of electronic trading in fixed income platforms has heightened demand for axes, however this had also led to a reduction in quality. As a result, axes have become less effective for price discovery and more difficult to trade, according to some buyside traders. Solving this issue would better support best execution.

FIX Executive Director Jim Kaye said both buy- and sell-sides had experienced frustrations with axes, which are an important part of bond trading, in an increasingly electronic world.

“This is not a new issue but it’s one that has irritated both sides for years,” he said. “FIX is ideally placed as a neutral, independent space for all members of the bond trading community to come together to sort this out and improve the bond trading experience for everyone.”

FIX EMEA co-chair Matthew Coupe from Susquehanna said that for the sell side, dealer selection protocols have meant RFQs are routed toward dealers who show axes, applying pressure for firms to show them to ensure they are included in RFQ selection. This has led to a reduction in quality.

“Sell side firms are well aware of these issues and are putting a lot of effort into making axes more accurate,” Mr Coupe said. “What we are looking for are higher-level strategic solutions that work for both sides, raise the quality of axes and allow buyside firms to use them when selecting their trading counterparties.

“The working group has identified two key deliverables. The first is to identify different types of liquidity and liquidity provider interest through FIX data standards,” he said. “For example, having a flag in an axe to identify ‘real’ positions would allow for better client and broker selection. Another deliverable that the group has agreed to look at is the creation of a standard report that can be delivered by platforms and trading venues of metrics that can be used to identify poor axe quality”.

FIX and ICMA will publish a joint discussion paper in the coming months. Firms interested in this issue are invited to contact FIX and potentially participate in the FIX Fixed Income Axe Standards Working Group by visiting www.fixtrading.org. ICMA members can also engage through its Electronic Trading Working Group

The FIX Trading Community is an independent global community where capital markets firms come together to solve common issues and shape the evolution of capital markets. FIX groups in over 60 countries are working on a range of global issues including digital assets; reference data; carbon trading; AI; algo trading; FICC and ETFs, while country and regional committees work together to manage local regulation and market structure matters.