Living in a FIXed world?

The use of Financial Information Exchange (FIX) for electronic trading has been regarded as a necessary investment in most overseas markets but historically has had a low take-up by Australian investment managers.

2010 FIX Survey

We surveyed 20 Australian investment managers, representing a cross section of the investment management marketplace, to gauge the growth of FIX usage in Australia and understand the drivers for its use. A similar survey was conducted in 2008 and provides a baseline to measure change.

FIX is an industry-driven messaging standard used in financial markets for the electronic communication of trade-related messages. Electronic trading via FIX is commonplace in the US and Europe and standard in Asia.

FIX usage has significantly increased

The latest survey demonstrates FIX electronic trading has dramatically increased over the two years since the 2008 survey. Nine of the 20 participants use FIX for electronic trading, a significant increase from the three users in the 2008. In addition, two of the non-FIX users are planning to implement FIX in the coming year, which will push FIX usage past 50% of the managers surveyed.

The increase in FIX usage is a result of a number of factors. Continued push of Australian mangers into international asset classes and global markets is a primary driver. Sourcing and implementing a FIX solution has become easier. FIX is out-of-the-box functionality for order / execution management systems. The provision of electronic trading as a managed service has further reduced the investment and effort required to deploy and operate and end-to-end FIX solution.

Maturation of FIX usage

The 2008 survey highlighted the immaturity of FIX usage in Australia. Not only were user numbers low but electronic trading via FIX was limited to primarily international equities, with one user trading domestic equities.

The 2010 survey demonstrates FIX users have moved beyond the ‘low hanging fruit’ of equities electronic trading into other asset classes. International and domestic equities remain the most widely traded asset class, followed by derivatives, FX, and domestic fixed interest. The only FIX-capable asset class not traded is international fixed interest. As a comparison, US and European markets have been trading non-equities asset classes for several years.

In addition to expansion of asset classes traded electronically the FIX functions used have also expanded from primarily order flow management to Indications of Interest (IOI’s), program trading, and post trade features such as allocations and confirmations/affirmations.

Cost and Risk Reduction are Still the Top 2 Priorities

The 2010 survey respondents named cost control through operational efficiencies and risk reduction as the top two business benefits of electronic trading.

The business case for FIX does not always stack up, however. For certain investment managers, including domestic only and those with low trading volumes, the business case for FIX is less compelling. The top two reasons given by the nine respondents who do not currently use FIX and have no plans for its implementation are ‘other trading tools meet their needs’ and ‘trading volumes are too low to derive benefit’.

Living in a FIXed world?

In addition to the significant FIX adoption by survey respondents, it is interesting to note the visible market indicators of the expansion of FIX:

– The Australian Securities and Investments Commission (ASIC) have mandated FIX for short sales reporting

– The inaugural Australian FIX conference in 2009 attracted over 280 attendees

– Several global FIX network vendors have recently entered the Australian market

Next steps for FIX in Australia

Australian investment managers will continue the expansion of FIX usage, asset classes traded, and functional coverage highlighted by Shoreline’s 2010 FIX survey. Increasing availability of managed FIX solutions and continued FIX education through events such as the FPL FIX conference will make the move to FIX easier.

John DiBiase
Director