FIX drive Turkey’s emerging capital markets

By Mikael Persson, VP Strategic Research
February 5, 2015

Over the past several years, Turkey has grown increasingly ambitious in its quest to become an economic stronghold. The country even has aspirations of joining the ranks of the top ten global economies by the year 2023.

As part of its plan for modernization, Turkey is turning its focus to its capital markets. Evidence of this can be seen in the recent partnership between Borsa Istanbul and NASDAQ OMX, a move that is intended to secure the exchange as the capital markets hub for the Eurasia region.

While Turkey’s capital markets have been electronic for some time, until recently, its Borsa Istanbul exchange was relying on dated proprietary platforms for trading in fixed income, equities, derivatives and precious metals. The platforms were developed before the advent of high speed trading and cannot support the attendant volumes associated with algorithmic or high frequency trading (HFT).

A desire to attract both HFT and hedge funds has made it necessary for Borsa Istanbul to upgrade its trading platform. Fortunately, its partnership with NASDAQ OMX will allow the exchange to migrate to NASDAQ’s platform. As part of this effort, the Borsa also plans to upgrade its existing FIX messaging infrastructure. Brokers will therefore need to update their own connectivity if they wish to continue trading on the exchange.

Evolution of FIX connectivity

FIX Connectivity has become the standard language of the global financial markets. It is used by buy- and sell-sides alike to communicate vital trade information. The protocol originated in the US in 1992 as a means of facilitating electronic communication between Fidelity Investments and Salomon Brothers. It was designed to replace the rather unreliable method of communicating trade information over the phone. It has since been adopted by many other exchanges and trading firms throughout North and South America, Europe and Asia Pacific.

In its increasing adoption of FIX connectivity, Turkey is taking a similar course of action as many other successful players on the global trading stage. For example, in Europe, both the Vienna and Ljubljana exchanges within the CEE Stock Exchange Group have implemented FIX within the past few years. This transition was made in order to foster efficient execution of stock exchange transactions and facilitate improved interaction among all of its market participants.

Turkey’s approach to FIX connectivity

While there are Turkish brokers using FIX to connect to the markets, typically they are using very basic, open source messaging engines to do so. The problem with these rudimentary engines is that their session level implementation is not always compliant with the FIX standard. They also lack functionality for facilitating real-time monitoring and dashboards for support analysis and tracking down the source of trading errors. Plus, support for such open source products can usually be obtained only through third-parties.

One leading broker that has elected to adopt a more sophisticated approach to FIX connectivity is Investment. The Turkish broker was challenged by unreliable connectivity and an inability to monitor connections. “We were unable to monitor for connectivity outages in real-time. Instead, if a line went down, we would hear about it from a customer,” said Şila Şirinoğlu, Project Manager at IS Investment.

According to Şila, another area the firm struggled with was identifying the root-cause of trade rejections. “Customers would call in and notify us that an order was rejected, but they were unsure why. We were frustrated because we were unable to view the source of these errors before they became an issue for our customers. Instead, we were forced to sift through lengthy FIX logs in an attempt to identify the problem after the fact. This was eating up a lot of time.”

With the intention of optimizing its connectivity capabilities, IS Investment decided to implement Itiviti’s Catalys Node for FIX connectivity, along with Catalys Management Information Server’s Dashboard for monitoring trade transaction activity. Thus far, the firm has seen measureable improvements in connectivity reliability, as well as in ease of monitoring. “We’re now able to create rules, alerts and escalations that allow us to detect potential issues immediately—before they have a negative impact on our customers. This allows us to take the right action at just the right time,” explains Şila. She went on to comment, “With the Itiviti solution, the time it takes us to detect and analyze problems has improved by 80%, and is a reduction by a factor of 4.”

Projected direction for Turkey’s capital markets

More Turkish brokers are now deciding to implement FIX connectivity out of necessity. Since Borsa Istanbul is set to retire its legacy messaging product in 2014, all brokers in the region will soon be required to adopt a standard version of FIX in order to connect to and trade on the exchange.

As part of the NASDAQ OMX partnership, Borsa Istanbul will also be adopting the ITCH and OUCH messaging protocols. ITCH is intended for information exchange surrounding trade transactions, whereas OUCH allows users to actively place, execute or cancel orders. Both are proprietary protocols utilized by NASDAQ OMX. Turkish brokers that wish to trade on the Borsa exchange will soon need to have the technology to support these protocols. To accomplish this, they will need to employ more sophisticated FIX gateways, as open-source engines are typically unable to support ITCH or OUCH without custom builds. And with this comes an increase in maintenance and testing requirements therefore the case for leveraging a test platform across FIX and other protocols makes economical sense. Of course, technology is not everything. The best partner-providers are the ones allowing firms to combine technology and services… ensuring you always have the access to invaluable expertise.

The aforementioned upgrades to Borsa Istanbul’s trading infrastructure will enable a much greater number of transactions to be traded on the exchange. While volumes are not likely to spike overnight, any increase in trading activity may increase the frequency of errors. As volumes of errors grow, issues will become more difficult to detect and resolve. To prevent difficulties, Turkish financial firms should seriously consider upgrading their FIX technology to comply with standards and best practices, and get access to sophisticated monitoring systems. This will not only give them peace of mind regarding their connectivity reliability, but will also provide them with greater control over their trading environment. Irrespective of regulatory pressure, brokers choosing to implement a highly available FIX solution will be in a better competitive position to provide a premium offering for their clients.

FIX gateway solutions with monitoring functionality built-in can help brokers and exchanges prevent issues such as lost or erroneously cancelled orders. If potential glitches are detected, an advanced FIX solution can help users quickly pinpoint the root-cause and put a proper plan into action before there are serious financial consequences.

Positioned for growth

Projected to generate about a trillion dollars in wealth by the end of 2014, Turkey’s economy is experiencing lightning-speed growth. Next on its agenda is securing a solid market for trading equities, futures and options. The Boursa Istanbul and NASDAQ OMX partnership has been a step in the right direction, but still more work needs to be done in order for the country to develop world-class capital markets.

Part of this will involve a need for more brokers in the region to fully embrace FIX messaging by adopting sophisticated FIX gateways. This will both improve the level of service they can offer clients, and open them up to greater business opportunity, such as being able to enter into the world of HFT and hedge fund dealings.

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