Australian funds managers compliant with the Financial Information Exchange (FIX) trading standard will have a decisive advantage over those who are not as the year progresses, according to Keith Wright, SimCorp senior domain manager.
Clients of SimCorp’s new order management tool, Order Management³ (OM³) – Victorian Funds Management Corporation (VFMC), Challenger Financial Services and QBE Insurance – will soon become compliant with FIX once they fully implement the software. Wright says that FIX will inevitably arrive in Australia and create a “different breed” of trader.
The standard enables traders to place and receive acknowledgement of orders electronically, bypassing manual methods such as phone, fax or email. It connects to multiple trading venues for major asset classes, in addition to other liquidity sources, including dark liquidity pools, and provides indications of interest (IOIs) from other traders. “Instead of spending time tracking information, traders are in an environment where they can see where their orders are and how many have been executed. Instead of gathering information, they’re making decisions,” Wright says.
Within 10 seconds of receiving a trading order through FIX, brokers must send an acknowledgment to the trader – if this is not done, the order becomes invalid. “The traders need to have an insurance policy because of the value of the orders that they’re sending down the pipe.”
Morse Consulting, a management consultancy, recently surveyed 15 funds managers, chosen to represent a cross-section of the industry, to gain an indication of Australian managers’ attitudes towards FIX. Three managers were found to use FIX, primarily for international equities trading. Only one carried out domestic equities trades through it. Managers focused on the domestic equities and fixed interest markets said that IRESS’s order management systems (which can integrate with FIX) and manual methods of placing trade orders adequately enabled their trades, John DiBiase, a principal at Morse, says. But as Australian managers enter multiple international markets, trading requirements became more complex as the number of trading partners increases and language and time zone differences complicate communications. Here, manual mechanisms “don’t cut it,” Dibiase says.
“The value that you get from FIX depends on the manager and their investment strategy – there might be a strong case for using FIX, or another trading tool. “It would be a priority for managers engaged with international markets.” He says many managers have been spending money on other parts of their business, such as marketing and business development and buying order management systems, rather than becoming compliant with FIX.
“If they’re not in international markets and they’re using IRESS, I don’t see a driver to use FIX.” However another major reason why managers opt for FIX is because it reduces the costs of operations as manual tasks, such as entering trade and execution details, and cleaning up the occasional mistakes that result from this, are no longer required. Both Wright and Dibiase believe that FIX connectivity will become necessary for Australian managers. Wright, however, says that those who make the switch earlier will have an edge on those who don’t.
He is in Australia to oversee the final stages of implementation of Order Management³ (OM³), SimCorp’s order management tool, with domestic clients. The product connects users to FIX, and to the following liquidity sources: ioinet, FXall, LehmanLive and fixed interest venues MarketAxess and TradeWeb. It is not yet linked to LiquidNet, a crossing venue for large off-market trades, but negotiations are underway, Other capabilities include support of large-scale program trading, so users can see, in real-time, how large orders are progressing and to see those that are causing pain.