Many, many, many moons ago I started my career in the City in the back-office of a US investment bank. Part of my daily duties back then was to ensure that the client confirms, that were dispatched by post to clients, matched the dealing tickets from the previous day. Each day I would start with a pile of 100 dealing tickets and a pile of 300 trade confirms (accounts had multiple confirms). So I checked the usual details – Buy or Sell, Quantity, Symbol, etc. Every now and then a checking error would occur, adjustments had to be made and possible delay to settlement. It was a very manual process and on the odd occasion, I or a colleague (more often a colleague, of course) would not pick up a mismatch resulting in a settlement delay. At that point, when you had a manager or Head of Sales screaming blue murder at you, you realised the value of the post trade workflow.
Those days are long gone of course. The front-office and trading process became much more electronic and efficient and the confirmation/allocation workflow moved to a vendor driven CTM model. Those manual processes became more automated and the instances of trade failures greatly reduced as well. But there was still a feeling that the process of broker-to-client trade confirmation could be improved even further.
Within the FIX Trading Community, we have a large number of active Working Groups, Committees and Subcommittees. One of the most active and best attended groups is the Global Post Trade Working Group. The group has been in existence for just over 12 months, has 190 members and has set out its aim as ‘to explore how to effectively address the many challenges impacting global post-trade processing to encourage the development of increased transparency, reduced costs and greater efficiencies in this space.’
As FIX started out in the US 20 years ago, so did the idea that the FIX Protocol could be used for post-trade in some way. Prior to the formation of the Global Post Trade Working Group, some of the largest US asset managers had got together to explore the possibility of using FIX for the confirmation and allocation process. They drew up some initial guidelines for the adoption of FIX for this workflow for cash equities. This was a major departure from the incumbent CTM model and would allow the broker-to-client flow of information to leverage off the already well-established electronic trading infrastructure and help facilitate straight-through processing (STP). As time went on, The Global Post Trade Working Group took shape and those initial guidelines became Recommended Guidelines and the scope was broadened out to include vendors and the sell-side.
Why would this be so important to asset managers? It really goes back to the aim of the Global Post Trade Working Group - increase transparency, reduce costs and achieve greater efficiencies. By not being reliant on any one vendor for the confirmation/allocation process, that single point of failure is all but eliminated. FIX has become the de-facto messaging standard for trading. As an open standard, the possibilities for it to be used for more than just trading have been very apparent over the years.
Additionally, settlement cycles around the globe look to be shortening. In EU, settlement will move to T+2 in early 2015 and there is talk in the US of a similar move being made. This will put even greater strain and emphasis on making sure that the confirmation and allocation processes are done correctly and efficiently. In years to come, there may even be a push to T+1 and potentially even real-time settlement. To be able to meet all these changes, the buy side and sell side have embraced the use of FIX.
There has been a very conscious effort by the Working Group to ensure that the momentum they have built up with cash equities continues into different asset classes for post-trade. Various sub-groups were created to address Equity Swaps, FX and Fixed Income. Guidelines for these different asset classes are being worked on and drafted and expected to be released over the course of 2015. There will be more efforts to push for greater adoption within the FIX Trading Community and outside of it going into next year as well and we can expect more innovation as time goes on with greater adoption of FIX for post-trade.
Although perceived as the less glamorous part of the business, post-trade is nonetheless still absolutely vital to all market participants, as it always has been. A trade failure on a multi-million US$ trade settlement does not go unnoticed. Having the ability to cut down these potential trade failures and to do it in an efficient and cost-effective manner will mean that FIX becomes the standard for pre-trade, at-trade and post-trade.
By Tim Healy, Global Marketing and Communications Manager for the FIX Trading Community