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March 2, 2012

FIX Shoots For Greater Transparency

By James Armstrong

A key industry group is looking to expand the information in trade confirmations, giving the buyside more detail about their trades-and also increasing transparency in the marketplace.

The FIX Protocol Ltd. Americas buyside working group has been trying to amend FIX Protocol to make it easier to track orders. It is considering the adoption of new FIX tags later this year, probably after second quarter.

Many on the buyside have been looking for greater transparency about where their orders are routed and where they eventually get executed. This stems from worries that orders might get gamed by predatory traders. If the buyside had a better accounting of where their orders go, they could avoid toxic venues.

Currently, the FIX data the buyside gets back can be misleading, said Brian Lees, an associate vice president at Capital Group Companies and a member of the working group.

A venue might be listed as the last market for an order, but if the order was routed out, it means it was actually filled at a different venue. Currently, FIX Protocol notes the venue and a separate tag can indicate if the order was routed somewhere else. But the protocol does not indicate where the order went.

Tag 30 is supposed to be last market, and the working group wants to make sure it actually does tell traders the last market where an order went, Lees said.

Justin Schack, Rosenblatt

Another area where FIX Protocol has trouble is distinguishing between lit and dark markets when they are both run by the same operator, such as an exchange.

"Some venues may have both a dark and a lit portion, and they may not have registered the dark portion as a separate exchange," Lees said. "We really want to be able to differentiate dark and lit volume."

While the industry has made much progress understanding where orders are executed, it is also important to know where an order went before execution, said John Goeller, managing director in global execution services at Bank of America Merrill Lynch.

This can be especially important when a trade gets split across multiple venues but only executes at one. That's potentially leakage, Goeller said.

Even if the buyside gets all the routing data it wants, some firms might not have the resources to analyze it all, said Justin Schack, managing director for market structure at Rosenblatt Securities. He said the copious amounts of data generated for the buyside could require the help of third-party vendors.

"Some of the really big shops out there have sufficient internal resources to be able to process all this information and actually draw some conclusions," Schack said. But not every firm is going to have those resources."

Schack said many buyside firms will have to think long and hard about whether they can handle all that data themselves or whether they need to work with a vendor that will help them sift through it.


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