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February 1, 2012

Cover Story: Full Disclosure

By James Armstrong and John D'Antona Jr.

Since Deutsche Bank doesn't offer its own execution management system, it would likely partner with a vendor to stream routing information directly to clients. Fagen said he hopes to have a client-focused version of Trade Pad out by the end of the year.

Currently, it is fairly rare for the buyside to get detailed execution data. According to Alex Hagmeyer, vice president in analysis firm Markit's data analytics and research group, while brokers usually are able to provide certain routing data in FIX Protocol, they generally do not do so unless the buyside trader asks for it.

"Over the last 12 to 18 months, larger institutions are looking for this information," Hagmeyer said. "Brokers are much more commonly able to provide Tag 30, or last market code, but not by default."

FIXing the Problem

Even when brokers do provide information about where orders get routed, that information is not available to the buyside in a standardized form. The FIX Protocol Ltd. Americas buyside working group is trying to change that. It is considering the adoption of new FIX tags that could provide additional information on orders-and in the same format regardless of the broker.

Brian Lees, an associate vice president and software development manager at Capital Group Companies and a member of the FIX working group, said there are a few tags that could be added this year that might improve the ability to track orders.

"Brokers were making up their own codes," Lees said. "It becomes a never-ending battle of trying to keep up with all of those things. What we needed was a standard way of defining them."

Some brokers are using coding from the International Standards Organization. The ISO established market identifier codes - MIC - in May 2003. According to Hagmeyer these codes are not employed universally by all U.S. brokers, and certainly not on a global scale.

"I can verify the fact that using MIC codes in the FIX Tag 30 has not been adopted by all brokers," he said. "We receive several execution reports with values like '19' or 'N' in the Tag 30 field. Obviously, neither of these are MIC codes."

That makes order tracking a painstaking process for the buyside and for firms like Markit that provide mapping of the codes and other analysis services.

Lees said many buysiders in Europe want a somewhat different approach to standardized FIX tags than that taken by their U.S. counterparts, and FPL will have to merge the U.S. and European views to come up with a single set of guidelines. Sometime after the first quarter, however, the organization might come out with another addendum to FIX Protocol.

David Lewis, the head trader for U.S. stocks at Franklin Templeton, said that meanwhile there are still things the buyside can do to better track orders with the information they're getting now.

For instance, firms can look over a long period at which venues actually tend to fill orders. These are the venues that have true liquidity, and if a dark pool is unlikely to execute an order, there's no reason to send an order there, he said.