By Maria Netley, EMEA Regional Director, FIX Trading Community
Without the FIX trade community, the ability of the global regulatory community to create transparent markets would be nearly impossible. It seems like a pretty broad statement for the community, so let’s take a close look at what we mean by that.
Almost without exception, regulators strive for more transparency in “the markets”, but what exactly does that mean? Transparency is the way through which all market users, whether individuals, professional investors or large corporations, can see exactly what is happening in our markets. However, markets are not simple and a trade between two participants will have nothing to do with the transaction between two others. The most important part of transparency is understanding the true circumstances behind each trade – without this information, the data becomes meaningless.
Additionally, each region, country, and jurisdiction has different rules. The rules are often at a high level and then implemented in slightly different ways – the result of which is that users start to lose confidence in the data and find it difficult to understand or refute what they are seeing in the markets see. Only when the data is clear and unambiguous can regulators fulfill their duty to monitor and monitor safe markets.
So what exactly is required to ensure markets are transparent and clear, both for market users and those responsible for making them safe?
Global financial markets need clear standards and clear guidelines. They often need clarification (not to correct deficiencies in the law); quality data; constant challenge; and flexibility for improvement changes. Finally, markets must be able to appropriately censure those who do not follow the letter or spirit of the rules.
So where does FIX fit in? Market participants need to be able to create value and generate revenue through their work, but human nature will cause companies to distort their views to suit their own personal needs and motivations. This means that regulators walk a tightrope every day trying to understand the intricacies of the markets without necessarily getting the full picture. All market participants are represented (as they should be) by an army of industry organizations to advocate for them and protect their business models, and these groups will have as many disagreements as there are business models to protect.
The FIX Trading Community is a unique organization that represents the provision of data to all market participants and is able to evade any discussion that deviates from the end goal of clear standards.
The organization is uniquely positioned to bring market participants together to deliver these standards and guidelines in a professional environment where members are constantly reminded to “leave their corporate hats at the door”. It may seem that in a world all about dogs it’s hard to understand how companies do this, but at the end of the day there is a clear commercial reason for companies to work together. Regulation is as inevitable as death and taxes, and keeping compliance costs to a minimum is only possible by using good, well-defined standards.
The FIX Trading Community has been in existence for almost 30 years (the first FIX Committee was formed in 1994) and the organization is continually working to improve efficiency, reduce operating costs and reduce the operational risk of the markets.
In recent years, the community’s focus has been to keep up the pace of change and ensure the FIX protocol remains relevant through thorough extensions, guidance, and best practices.
The FIX Trading Community working with its members can provide these standards and guidelines. They are in the central position to understand all proposals, provide markets with a detailed understanding of how business works and the “gotchas” and guide decision makers towards regulatory standards that make sense and avoid unintended consequences. Another key aspect of good standards is an understanding of what is good and bad data and how bad data can be cleaned up and deleted.
The FIX Trading Community does its job well, but it can only do it well with the support of our members. This includes financial backing to enable the mechanics of the process, as well as corporate support to give their teams the space to participate and critical input across the industry spectrum (buy-side, sell-side, vendors, venues – everyone has ) to contribute to play a role).
However, we cannot do everything. The FIX trading community cannot monitor the markets – this must remain the responsibility of our regulators, but in the spirit of good transparency we can continue to provide advice on data issues that may arise and what can be done to resolve them.
Be part of the solution and get involved.
THE FIX TRADING COMMUNITY IS CURRENTLY INVOLVED IN A NUMBER OF MAJOR INITIATIVES INCLUDING:
Transparency of execution:
As regulations evolve and the buy-side/sell-side evolves, the desire for more detailed transaction data increases. It is important that the FIX protocol evolves to ensure that new data becomes available in a common and unambiguous way. The expansion and introduction of new fields and values in this area has supported this development. But even after extensions of the protocol, regular reviews of implementation across the industry allow working groups to provide further guidance as needed.
Transaction Cost Analysis (TCA):
This work has enabled the creation of industry-wide terminology, guidelines and best practices that allow for a more consistent assessment of the investment process and trading costs.
Post-trade transparency and European consolidated band:
We have further developed the MMT (Market Model Typology) standard for trade categorization which is now being adopted by all major European stock exchanges and APAs. Additionally, the FIX protocol is used for the majority of APA trade reports across Europe. We are extending both MMT and the FIX protocol to support ESMA and FCA changes to post-trade transparency rules in Europe and the UK. We are also writing addressable liquidity definitions and refining our liquidity categorization guidance.