Large financial institutions around the globe are increasingly investing in projects to reduce complexity around their electronic trading environments. Much of their focus has been around harmonizing front office systems across trading desks and asset classes to reduce disparate silos and redundant technology.
But many organizations neglect a key area that could help reduce both cost and risk – their FIX routing networks and FIX enabled services. For large and mid-tier firms, FIX infrastructure has multiplied over the past two decades. For many, growth has yielded cobbled-together systems of home-grown and vendor-provided FIX-enabled services including FIX engines, rules engines, and systems for testing, monitoring, customer onboarding, risk management and support services. Today, this infrastructure is aging and costing firms a small fortune to maintain. Some of the older FIX engines in production are no longer supported by their original suppliers, increasing the operational risk of keeping these systems in production.
Upgrading and harmonizing the overall FIX routing, monitoring and testing infrastructure with a complete set of integrated products can dramatically improve a firm’s operations, reducing complexity and operational risk while improving the customer experience.
An up-to-date FIX ecosystem should include integrated systems that enable application of complex business logic and risk controls with minimal impact to latency. The ecosystem should also include systems to support automated regression testing and customer onboarding. It should make it easy to monitor and manage connectivity. It should provide out-of-the box resilience. It should help firms optimize operations, infrastructure and trading capabilities.
Below, I’ll illustrate three tangible benefits firms can realize as a result of migrating from an outdated FIX network to a more holistic FIX ecosystem.
Many financial institutions have been built by acquisitions, so different business areas often have dissimilar technologies and processes in place. This phenomenon has exponentially increased complexity in banks’ infrastructures. When it comes to their trading framework, it’s not uncommon for these firms to have numerous FIX installations that are all siloed.
Accommodating client needs also increases the complexity of a sell-side’s routing infrastructure. Clients often have technical idiosyncrasies that require customization. In many cases, the customized processes are handled with custom code. Order routing infrastructure becomes increasingly convoluted as more and more custom code is layered onto the system to handle specialized business needs. Layers of code add more operational risk, increase the difficulty of debugging problems, and require increased maintenance and support resources.
At the same time, the markets themselves are becoming increasingly complex. While the market complexity is unavoidable, it’s incumbent on firms to make it as manageable as possible.
Ideally, a FIX ecosystem should be a complete solution that helps simplify a firm’s trading environment. It should make it simple to apply business rules without writing code. It should accommodate market complexity while making it simple to organize and update rules. It should include monitoring systems to make it quick and easy to identify issues and debug errors. In essence, it should provide the tools necessary to manage the complexity.
All failures have a cost. While not all incur multi-million dollar losses, even minor outages can jeopardize a firm’s reputation or relationship with a client.
A lack of proper testing is often at the root of such outages. Typically regression tests run by firms are manual and based on testing individual FIX messages rather than business logic. Therefore, the tests are unable to provide a truly realistic picture of how a function might perform in a real-life trading situation. Part of the problem is that legacy FIX testing systems don’t allow users test real scenarios with complex flows that are consistent with real trading behavior, so they are unable to predict how systems will behave in more complex scenarios.
Quality assurance teams need the ability to test the entire order lifecycle in an environment that is as true-to-life as possible. They need tools that enable advanced exchange and client simulation capabilities in order to simulate real market conditions involving race conditions, volatility and high throughput, and a variety of order types sent in at volume. Most of these tests are too complex to set up manually. So the only way QA departments can truly run sufficient regression testing is when using sophisticated automated testing tools designed for testing FIX trading infrastructure.
Legacy FIX architectures are expensive and time-intensive to maintain. Typically these solutions are built on rigid, dated technology with an abundance of custom extensions. So every time updates need to be made, FIX engineers have to access the code and manually make the change. Plus, often custom code is not well documented, making it more arduous to uncover issues or errors later on.
Staff reductions at many major banks have compounded the problems. Pared down IT teams are tasked with managing the volume of manual processes surrounding their trading environment. This reality has exposed a pressing need for automation to be introduced into a number of routine processes that may have once been handled manually when there was more staff available to do so.
A more advanced FIX ecosystem can automate many of these tasks and simplify others, allowing the remaining staff to offload many of the tedious activities and focus on offering enhanced services to your customers.
Understandably, many firms are concerned about the investment involved in swapping out legacy systems in favor of a functionally rich FIX ecosystem. But we encourage you to evaluate the status of your own infrastructure and maintenance costs. It’s likely that your firm can capture both enhanced competitive capabilities and dramatically reduced costs by modernizing your FIX routing infrastructure.
Firms that migrate to a rich FIX ecosystem that incorporates all of the integrated functionality needed in the trading workflow are able to reduce complexity, allowing them to focus resources on strategic projects while limiting their day-to-day tactical focus. The more your key resources are focused on strategically important work, the more competitive your firm will be.
Aside from competitive differentiation, upgrading your FIX infrastructure can help your firm streamline operations and achieve cost reductions in the process. Perhaps the most straightforward area where cost savings are achieved is workflow related. Fewer manual processes and touch points for FIX messages equate to a substantial reduction in staffing requirements.
FIX Infrastructure Jim Northey, Senior Vice President Strategy and Research at Itiviti, outlines his involvement with the FIX Community and the new standards initiative known as FIX Orchestra. This is intended to tackle the poor quality of the FIX standards document, creating machine readable Rules of Engagement that can help automate the process of connecting to counterparties. […] August 23, 2017
FIX Infrastructure The financial industry is constantly evolving, driven by a mix of new business and regulatory requirements. The imminent application of MiFID II in Europe is a case in point that is spurring a tectonic technology change. With a high pace of industry change and the cost of errors even higher, the quality assurance function is […] June 21, 2017
FIX Infrastructure It was a pleasure to have an opportunity to speak at the 2017 Americas Trading Briefing, which was graciously hosted by Goldman Sachs. As usual, the room was filled with more than 250 senior market participants and 25 expert speakers to discuss important topics, trends and issues we face together as the FIX Trading Community. […] June 7, 2017
FIX Infrastructure As the speed and complexity of automation rises, market participants have a duty to ensure that they pursue and maintain best practices. Read the full article here. This article by Jim Northey, Senior Vice President, Strategy and Research, Itiviti was first published in the Electronic Trading Journal-GlobalTrading, Q2 2017 Issue #62. June 1, 2017