FIX Protocol Limited (FPL) is proud to announce the release of a report entitled ‘The Benefits of the FIX Protocol’. The report has been produced by Oxera, one of Europe’s leading independent economic consultancies. The results of the report detail the significant and beneficial impact the FIX Protocol has on global trading practices and its future potential.
The FIX Protocol is an industry-driven messaging standard that offers a common, global language for the automated trading of financial instruments. It is a free and open standard, offering a specification around which software developers can create commercial or open-source software.
Released during a period of challenging economic conditions, ‘The Benefits of the FIX Protocol’ report identifies that increased use of FIX by market participants could improve capital market operational efficiencies, reduce risk and generate considerable cost savings, which, if passed on, would ultimately deliver significant financial benefit to the end investor. Additionally, keeping track, in real-time, of the ownership and location of increasingly complex financial instruments also delivers benefits of financial stability through easier and more efficient regulatory monitoring.
The report highlights the considerable size of the markets that benefit from the protocol, noting they currently include the USA, European and Asia Pacific equity markets, which in 2008 reported an annual turnover of more than $113 trillion. Additional to this, a significant number of emerging equity markets, the global fixed income, exchange-traded and OTC derivative, and foreign exchange markets also benefit from the protocol.
Oxera identifies ‘network effects’ as proving fundamental to the benefits FIX delivers to the financial community. Network effects are generated when, as more parties adopt a particular way of doing something, there is greater immediate benefit for new parties that subsequently adopt the same way of doing it, as well as increasing the value to those who have already adopted it.
From a FIX perspective, these benefits translate into reduced connectivity costs, as FIX reduces the time and complexity involved in connecting to multiple trading partners across different geographies. A prime example of how these factors have delivered actual benefit is the increased number of alternative trading systems now active in the U.S., and the growing number emerging in Europe. The study identifies their relative ease of market entry as having been significantly facilitated by standardised connectivity solutions such as FIX, as FIX enables market participants to connect to these new trading platforms for a comparatively small cost.
Commenting on the study’s results, Fod Barnes, a Senior Adviser at Oxera, and instrumental in the report’s development, stated “Industries that require complex communications between different players in the value chain often exhibit very strong efficiency benefits from the standardisation of those communications. But to get the standardisation needed, to realise these system wide benefits, requires coordination and cooperation, which does not always happen on its own. The capital markets are a very good case in point, and this study illuminates both where these benefits have arisen, and where they could arise in the future. Given the complexity of these markets, and their economic importance, getting the standardisation right can deliver real benefits, to both investors and regulators.”
Delivering standardised solutions to market participants that continue to generate increased efficiencies and cost saving is central to the goals of the FPL organisation. Prime examples of how FIX standards seek to achieve these objectives are the FIX Adapted for STreamingSM (FAST) Protocol and the FIX Algorithmic Trading Definition Language (FIXatdl) Version 1.1, which will be released in Spring 2010. The FAST Protocol is a data compaction methodology utilised by the industry to facilitate the efficient exchange of financial data in high volume situations, and FIXatdl provides support within the algorithmic trading arena, significantly reducing the testing and coding time needed and subsequent investment required to develop innovative new algorithmic order types.
To enable market participants to benefit from the findings of this study ‘The Benefits of the FIX Protocol’ report is publically available for download from the FPL website by visiting www.fixprotocol.org/documents/4924/TheBenefitsOfTheFIXProtocol.pdf. In releasing this study FPL would like to express its gratitude to Barry Marshall, former Co-Chair of the FPL EMEA Regional Committee, and to Jim Northey, Co-Chair of the FPL Americas Regional Committee and Co-Founder of the La Salle Technology Group, for their significant contribution to the preparation of this report. They each donated a significant amount of time and effort, and in addition, provided extremely valuable knowledge and experience.
