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April 30, 1999

The FIX Quality Control

By John Spensieri

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  • The FIX Quality Control
  • Page 2

What do the Internet and the FIX protocol have in common? Both are red hot.

And both are perfect examples of how improvements in communications technology do not necessarily improve information quality.

Poor content dressed up and delivered in streaming HTML format over the Internet is still poor content. A Financial Information Exchange, or FIX message, from a broker sniffing out market demand - rather than looking to execute a customer order - is still irritating.

So while FIX holds within its grasp the promise of improving the quality of buy-side and sell-side communication, it cannot do that alone.


Simply put, FIX is an electronic messaging protocol. When utilized in the industry's trading systems and networks, FIX allows messages to be exchanged between buy-side and sell-side firms without special customized integration efforts.

Using systems written with FIX specifications, firms can advertise trades, indicate interest in markets and exchange pre-trade data with each other. The process is seamlessly electronic.

Technologically, FIX provides an open standard that can serve as the starting point for all development efforts. That enables an easier linkage with a wide range of counterparties.

In the early 1990s, FIX began as a small-scale initiative to improve the quality of information exchanged among a few top securities firms.

What eventually grew out of the original protocol was a number of vendor-delivered, FIX-compliant trading systems that provided broad connectivity to the industry's top players.

The continuing evolution of FIX demonstrates how various trading applications and services can be easily integrated, leading the industry toward its long-heralded goal of straight-through processing. FIX has become one of the most talked about initiatives on Wall Street.

What advantage is FIX actually giving to its users? That depends on which side of the street they reside on. For the most part, brokers benefit from FIX by being able to send indication-of-interest (IOI) messages to a vast universe of potential buyers.

The popularity of the IOI is phenomenal, with more than 200,000 messages transmitted during an average day. Roughly 20 percent of these are naturals. These are concrete buy or sell offers that are time-sensitive and involve a commitment to produce the merchandise specified in the message.

The other 80 percent represent the flip side of the coin. These lower-commitment messages run the gamut from near natural-quality IOIs to speculative fishing.

Fishing is industry-speak for using IOIs to get other firms to reveal their supply of, or demand for, a certain issue. Here, the IOI is used as an intelligence tool, which can be frustrating to those firms on both the buyside and sellside that are attempting to complete actual trades.

Mixed Blessing

For institutions, FIX is seen as a mixed blessing. Few doubt it as a worthwhile concept, offering the promise of expanding real opportunities for trading and monitoring interest in particular stocks.

Unfortunately, as FIX's popularity expanded, controlling message traffic and quality became an issue. The huge volume of variable-quality messages has left many institutions scratching their heads about what to do with their FIX-compliant systems. Expecting FIX to deliver a comprehensive, high-quality messaging network, these firms have found their FIX implementation falling short of expectations.