FIX Protocol releases guidelines for electronic bond trading

18 February 2013

FIX Protocol, the industry standards organisation for electronic trading and messaging, has published best practice guidelines for the e-trading of bonds. The body says it should enable bond market participants to benefit from cost effective and efficient connectivity to the increasing number of bond trading platforms in the US and European financial markets.

According to FIX the body acted in response to regulatory efforts to increase capital requirements and enhance transparency post-crash, in what has up until now been a traditionally voice traded asset class. New bond trading rules, however, have led to market structure changes, creating an increasingly automated and venue-driven trading environment, in-line with other more advanced market, necessitating a need for change. The best practice and implementation guidelines provide recommendations to both existing and emerging bond venues, broker-dealers and market makers on how they can use the FIX Protocol to support their platforms.

The new guidelines complement recommendations released in 2012 to support the trading of credit default swaps (CDS) and interest rate swaps (IRS), which are currently being implemented by a number of swap execution facilities (SEFs). They were devised by market participants keen to encourage the adoption of standards by fixed income trading venues.

The recommendations explain how FIX can be implemented in a consistent manner to lower implementation costs and deliver maximum industry-wide benefit, including recommendations for how FIX can be used to support fixed income trading on:

• Markets based on quote negotiation, utilising request for quote (RFQ) models.
• Quote-driven markets based on streaming executable quotes.
• Markets based on central limit order books

“This initiative is expected to play a significant role in the evolution of bond trading,” said Sassan Danesh, a managing partner of ETrading Software. “In recent years this market has witnessed massive change and as it becomes increasingly electronic encouraging the use of FIX will be vital to its success. FIX adoption will ensure that an efficient trading environment is created, within which innovation and competition can flourish.”

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