What is FIX protocol? (Intro)

Introduction

FIX Protocol is a message standard created specifically for financial systems communication. It was authored in 1992 by Robert "Bob" Lamoureux and Chris Morstatt to enable electronic communication of equity trading data between Fidelity Investments and Salomon Brothers. FIX initially addressed information between broker-dealers and their institutional clients. At the time, this information was communicated verbally over the telephone. Fidelity realized that information from their broker-dealers could be routed to the wrong trader, or simply lost when the parties hung up their phones. It wanted such communications to be replaced with machine readable data which could then be shared among traders, analyzed, acted on and stored. According to the FIX Trading Community, FIX has become the de facto messaging standard for pre-trade and trade communication in the global equity markets, and is expanding into the post-trade space to support straight-through processing, as well as continuing to expand into foreign exchange, fixed income and derivatives markets.It became very popular standard for the financial community due to be a number of factors. First and most important that it is a open protocol where anyone can modify and add use without royalty free. It is also a protocol that is independent of any platform, programming language or vendor. Nowadays, it is used as an option into many of the software communication in all order lifecycle. Another good motive is that is agnostic to the transport layer, making it suitable for many uses.

Benefits

Communication standards have historically played a significant role in economic developments, often increasing the efficiency and competitiveness of sectors and countries that adopt them. For example, the Internet Protocol (IP) and the Global System for Mobilecommunications (GSM) have had significant effects on innovation among providers of Internet and mobile communication services respectively.In the financial services industry, standardisation of messaging plays an especially important role due to the complexity of communications needed to operate these markets effectively and the large number of firms involved in delivering the service that end-investors need. Thebenefits associated with standardising communications among financial services firms are therefore likely to be greater than for many other economic sectors.The automation of trade and post-trade processes over the past 10–20 years has changed the way firms operate and interact, bringing about a reduction in the risks and costs associated with these activities. However, the automation of processes within firms can only take them so far; therefore, the automation of the communication between different participants offers additional benefits. As this study indicates, these benefits are particularly strong when internal automation and external communication are conducted with the same messaging protocol, such as FIX.

Benefits to the Dealer

Helps to increase efficiency by freeing up valuable time otherwise used to communicate price and execution data. Allows for greater focus on complex trading issues that require client contact, market colour and commentary.Helps to reduce costs associated with manual errors in the trade entry, execution, and post trade processes, by allowing for a more seamless integration of various order management applications and functionality.Improves dissemination of price information, allowing for more efficient monitoring of market liquidity.

Benefits to the Sales Trader

Allows traders to continue speaking with dealers via the telephone and email for complex trading issues that require market color and commentary, but the transmission of information such as side, quantity, issue, price, etc. is communicated electronically so there is less potential for human error.Seamless and real-time communication of execution data throughout the day, so the dealer is constantly kept up-to-date with the status of their order without having to be called several times a day to report on progress. This enables traders to concentrate more efforts on executing trades, rather than reporting on the status of orders.Although electronic, the dealer can still "touch" the order (i.e., cancel, change the nominal, place limit prices and other instructions against the order) at any time during the day. The sales trader has the ability to "accept" or "reject" any of these change requests from their order management application.

Benefits to IT

Minimises business risk by helping to prevent loss, modification or misuse of business critical information exchanged between organisations.Improves system scalability by embracing an industry standard protocol, and improves operational efficiency and control of the investment process through automationReduces the need to support multiple solutions across business units (Fixed Income, Equity, Derivatives, etc.), which is inefficient and not cost effective.

Benefits for the buy and sell sides

Increase in speed and efficiency of entire trade entry, execution and reporting process, which helps to facilitate STP and reduce costs associated with manual errors.Enables seamless connectivity to multiple counter-parties and enhances price transparency and access to liquidity.Helps to increase efficiency by freeing up valuable time otherwise used to communicate price and execution data. Allows for greater focus on complex trading issues that require dealer contact, market colour and communication.

1992 - Fidelity and Salomon Brothers announce the pilot project1993 - First system to use FIX goes into production.1994 - FIX Committee is created and FIX 2.7 is launched.1995 - FIX conference in New York and FIX 3.0 is launched.1996 - FIX conference in London and FIX 4.0 is launched.1998 - FIX conference in Tokyo1999 - Fix Protocol Limited (FPL) is born2000 - FIX 4.2 is launched2001 - FIX 4.3 is launched2002 - FIX 4.4 is launched2004 - FIXXML 4.4 schema is created2005 - FAST proof of concept2007 - FIX 5.0 and FAST 1.1 is launched

Historical Events

FIX Version Evolution

As the FIX versions increase, their functionalities and granularity also increases. These changes are outline as a high level view below:FIX 4.0 - contains 19 business messages (140 fields)The FIX 4.0 specification delivered enhancements over FIX 3.0 in the following areas: Session layer Header information Supported encryption Date fields were modified Allocation support was significantly improved FIX 4.1 - contains 21 business messages (211 fields)FIX 4.2 - contains 36 business messages (446 fields)FIX 4.3-  contains 59 business messages (659 fields)FIX 4.4 - contains 83 business messages (956 fields)FIX 5.0 - contains 100 business messages (1139 fields)

FIX 4.1 - contains 21 business messages (211 fields)The FIX 4.1 specification delivered enhancements over FIX 4.0 in the following areas: Orderflow Allocations/settlement support Symbology Internalization

FIX Version Evolution

FIX 4.2 - contains 36 business messages (446 fields)The FIX 4.2 specification delivered enhancements over FIX 4.1 in the following areas: Enhancements to better support exchanges and ECNs (Market Data, Security Definition and Status etc.) Program/Basket Trading support 'Mass quoting' support for equity options Support for Japanese requirements (Japanese character sets, order handling, and allocation support) Enhanced foreign exchange capability Fixed Income IOI capability for High Yield and High Grade corporate bonds Order pre-allocation functionality.

FIX Version Evolution

FIX 4.3-  contains 59 business messages (659 fields)The FIX 4.3 specification delivered enhancements over FIX 4.2 in the following areas: Fixed Income product support Collective Investment Vehicles (CIV) product (Mutual Funds, Unit Trusts, etc) support Enhanced support for Derivatives products Expanded support for Cross orders Support for swaps and multi-leg instrument orders 'Streetside' trade capture reporting (e.g. sellside to DTC in U.S.) Enhancements to security and trading session definition and requestsAdditional support for Asia/Pacific and Japanese requirements

FIX Version Evolution

FIX 4.4 - contains 83 business messages (956 fields)The FIX 4.4 specification delivered enhancements over FIX 4.3 in the following areas: Improved support for fixed income including Treasuries, Municipals, Corporates, Repos and Security Lending Enhancements to Quoting messages to support fixed income negotiation process Minor enhancements to single and muli-leg orders to support fixed income Allocation model to support 2-party Fixed Income trading. Enhanced Allocation and Trade Capture Report messaging to support 3rd party FI reporting. Enhanced Allocation messaging for street-side listed futures and options. New 'allocation claim' or response messages. Enhanced Trade Capture Report to support blocks and exchange for (off floor) reporting for listed futures and options. Added new messages to support Position Maintenance. Added new messages to support Assignment Reporting. Cleaner Allocation messaging with AllocationInstruction and AllocationReport and their corresponding Ack messages Move away from 'implicit' allocation confirmation towards explicit confirmation with new Confirmation messages Improved 'ready-to-book' messaging using the allocation message set. Improved SSI support with new SettlementInstructionsRequest message Improved support for the concept of 'warehousing' which is applicable to certain markets. Overall enhancements to Trade Capture Report messaging. Overall enhancements to multi-leg instrument support.

FIX Version Evolution

FIX 5.0 - contains 100 business messages (1139 fields)The FIX 5.0 specification delivered enhancements over FIX 4.4 in the following areas: Introduction of new Transport Independence Framework (FIXT) to separate FIX Session from Application Protocol Extensions to support Derivatives post-trade processing Foreign Exchange trading support including RFQ, streaming executable prices, and multiple instrument types Support for US OATS Phase 2 and RegNMS regulations, and Europe's MiFID directive Better support for market data book management and data optimization Better support for order routing, trade capture, and external routing in an exchange environment. Enhancements to trade capture reporting to better support exchange reporting models. New Execution Acknowledgement message allowing order initiator to explicitly acknowledge an execution report. Chinese STEP 1.0 support Algorithmic Trading extensions to provide a better framework to flexibly express algorithmic parameters.

FIX Version Evolution

The FIX 5.0 Service Pack 1 delivered a number of extension packs to enhance FIX 5.0 in the following areas: Improved functionality for exchange quotation models and order routing practices Enhanced Listed Derivatives reference data support for Options, Futures, and Options on Futures New set of messages for Market Structure definition Support for trading listed Interest Rate Swaps Application level sequencing with advanced support for market data recovery Foreign Exchange OTC settlement obligations Changes to Rule80A, OrderCapacity, and Order Restrictions to reflect revised NYSE regulations

FIX Version Evolution