FIX has been at the forefront of electronic trading for over two decades now. It is the de facto standard for multi asset trading across the globe. From its earliest incarnation as a protocol for routing orders between market participants, the ethos of collaboration and standardisation has been clear. In the financial industry, it is sometimes rare to see business and technology work in harmony. FIX is an example of just that. If you speak to a head of trading at an asset management firm and ask them the impact that FIX has had on their workflow over the years and the efficiencies it has bought to the industry generally, they would reply strongly in the affirmative.
Twelve months ago, members of the FIX Trading Community decided to address the growing regulatory burden with that very same collaborative ethos in mind. Six MiFID Working Groups were formed to address specific MiFID II Regulatory Technical Standards (RTS). These working groups are focused on Best Execution, Transparency, Order Data and Record Keeping, Microstructure, Reference Data and Clock Synchronisation. Participants from the buy-side, sell-side, vendors, exchanges, venues, consultancies and other trade bodies were invited to join these working groups with an aim to discuss, debate and ultimately provide guidelines on how firms should meet these requirements. It was vital to get practioneers on these calls – heads of trading, market structure experts, consultants, project managers. The degree of detail in the regulation is such that these experts within their respective spaces were vital to drive the working groups forward. The response rate was strong and each of the working groups, chaired by experts, has seen progress over the last number of months. The Best Execution Working Group are focused on RTS 27 and 28 and working on a number of different scenarios across asset classes to determine where the requirement for providing proof of best execution lies – ie venue, buy-side, sell-side. In addition to this, they are looking to produce standards for these reports to be machine-readable, as requested by the regulators.
The Transparency Working Group are concentrating their efforts on RTS 1 and 2. Pre and post-trade transparency are two key elements of MiFID II regulation with a requirement for the standardisation of trade data. The Market Model Typology (MMT) standard which comes under the jurisdiction of the FIX Trading Community has recently been updated and aims to produce a MiFID II conformant trade flagging model for equity and non-equity financial instruments.
The Order Data and Record Keeping Working Group have two distinct areas to examine – firstly, the exchange/venue facing requirements such as algo ID flagging, trader ID requirements and the centralisation and storage of this information; secondly, the broker requirements for the personal information of their employees and their record-keeping. One of the key aspects to their work is the transmission of the required data and how that can be effected in an efficient manner.
The Microstructure Working Group are looking at RTS 6 – 12 and looking at producing a number of best practices for algorithm testing, conformance testing and have put together a number of use case scenarios to demonstrate to regulators how FIX members have interpreted the record keeping requirements in this particular set of RTS.
The Reference Data Working Group cross references all other MiFID working groups as it identifies the requirements and looks to establish suitable standards where no well-defined data standard exists. This is particularly applicable for OTC derivatives where representatives of FIX are working with the ISO Study Group to identify how the ISIN standard can meet the MiFID II requirements.
The Clock Synchronisation Working Group has already made an impact with the FIX Protocol now being enhanced to support greater granularity on timestamps. They are now working with the National Physical Laboratory to define common standards for traceability, terminology and calibration.
Post 24th June, it would be fair to say that the waters have been somewhat muddied by the referendum decision in the UK. Understandably, the market is in a state of flux about next steps and the market hates that sort of uncertainty. From a FIX perspective, it is important that we keep a business as usual attitude. FIX works with regulators and authorities across the globe and will retain its neutrality to ensure it can address the changes in direction of regulation.
It would be naïve to suggest that FIX and its members have the answers to all of the challenges they now face. There is a degree of subjectivity in much of the regulatory text that requires discussion and debate. FIX has been speaking to a number of industry associations as well as directly to the regulators to ensure that any ambiguity is discussed and clarified. This spirit of collaboration and sharing of knowledge is essential to the work being done and will continue to help market participants address these challenges.
The MiFID clock is ticking and the message is very clear. EU regulators are urging market participants to review their infrastructure and address the challenges sooner rather than later. Implementing solutions for MiFID II will be expensive. Margins are tight enough for a large proportion of the industry and unlikely to ease anytime soon. The FIX Trading Community strongly believes that the use of standards can add greatly to the efficiencies in the market place. We encourage you to find out more about the organisation and the work that is being done.
By Tim Healy, Global Marketing and Communications Manager, FIX Trading.