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FPL update guidelines for equities post-trade processing

FIX Protocol Ltd (FPL), the provider of the FIX financial messaging standard for global markets, has found favour for its update of its guidelines covering post-trade equities processing. Senior managers at Greenline Financial Technologies Inc, American Century Investments and Morgan Stanley have all voiced strong support for the guidelines, first revealed in April, which are now being rolled out worldwide, with enhancements to support allocations, confirmations and affirmations. Data about how settlement instructions and market fees can now be better represented in FIX is available to all.

The FPL post-trade equities processing guidelines seek to provide buy and sell-side firms on the world’s financial markets with a standardised approach and messaging format to enable more effective risk oversight and management, aid straight-through processing (STP), and to help firms meet enhanced transparency requirements post-crash, as well as a market need for greater efficiency in post-trade equities processing during tough times.

FPL’s Post-Trade Processing Guidelines were originally disseminated in April 2012 by the FPL Americas Buy-side Working Group to help address these challenges, and extend FIX’s reach further into the post-trade environment, which is undergoing considerable change as MiFID II and other new regulations are demanding more transparency, while equities volumes are simultaneously falling introducing market pressures for efficiency.

The guidelines are now being implemented globally by many investment managers, broker dealers and vendors, with Greenline Financial Technologies Inc, American Century Investments and Morgan Stanley prominent among other supporters, which include Traiana, Fidessa and many others.

According to FPL the tolerance level for post-trade inefficiencies is shrinking and the industry is witnessing a determined drive to adopt free, open and non-proprietary standards as the platform on which firms can better manage their operational risk and cost base. The strain on the industry’s post-trade infrastructure is expected to permeate further with increasing regulation, shorter settlement cycles and a recognition among some that there is no longer much competitive edge in this space. Investment managers and broker dealers are as ever focused on using mutually agreed standards to deliver better STP and lower costs.

Claimed benefits for the new FIX equities post-trade processing guidelines and formats - if they are widely adopted - include:

• A reduced dependency and associated risk on multiple systems, as having a single approach for processing trades in the post-trade environment introduces clarity.

• A standardised approach to workflows should cut complexity and in turn the costs and the time required for issue resolution, says FPL.

• The ability to eliminate matching ambiguity and the need for complex matching algorithms through the use of standardised trade identifiers. The separate legal entity identifier (LEI) standardisation drive is essential in this regard.

• Increased guidance about fee types should result from the guidelines, helping to reduce trade-breaks which in turn cuts costs and processing times.

• Detailed settlement instructions for confirmation processing will result, reducing management costs and potential errors.

The guidelines need industry-wide acceptance to deliver the claimed benefits above, but the wide-scale rollout now underway is intended to ensure this with a phased implementation by both the buy-side and sell-side communities progressing in Europe, America and elsewhere. FPL also says it will explore enhancements to the guidelines in the future based upon usage feedback.

Industry Support

Commenting on the FPL guidelines, David Tolman, a senior manager at Greenline Financial Technologies and chair of the FPL Americas Buy-side Post-Trade Working Group, which launched them last month after work-shopping them for many months, said: “We have witnessed major progress in this initiative in the last 12 months, thanks to substantial industry-wide participation. Through market feedback we have been able to provide more detailed guidance about how confirmations and allocations can be delivered using FIX, including further information about how settlement instructions and market fees can be represented. Through industry collaboration we are now moving forward at a very rapid pace.”

According to Scott Atwell, FPL director and manager of the FIX Trading and Connectivity unit at American Century Investments, extending the use of FIX to post-trade completes the communication cycle between buy-side and sell-side firms. “After using FIX for the order and execution processing, a buy-side firm can now simply send a FIX Allocation with account-level breakdowns, and the sell-side firm will send a FIX confirmation message for each account,” he said. “After successfully matching, the buy-side firm then responds with a FIX message to affirm each confirm, creating a succinct process with an audit trail. The benefits include efficiency gains, improved STP, and quicker identification of [risk] issues.”

Michael Fiscella, executive director at users Morgan Stanley, is also a strong supporter, noting that: “Post-trade STP standardisation using the FIX Protocol is increasingly important for our clients as they seek to enhance operational efficiencies, streamline processes, and improve resiliency.”

• To see the inaugural bobsguide blogger (i.e. contributing editor) submission from FPL, curated by Daniella Baker of FIX Protocol Ltd (FPL), please click HERE. Daniella will be overseeing a number of submissions from FPL members about the changing capital markets arena, with the first such blog provided by Sassan Danesh, FPL co-chair of the global fixed income committee, and a managing partner of Etrading Software.