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Extracting Business Insights from Managed FIX Services

By 29 Jul, 2019November 21st, 2019Insights, Technology Trends

The Ability of Business Intelligence Tools to Optimize the Broker & Client Trading Relationship

Managed FIX services are evolving from infrastructure service solutions into robust connectivity ecosystems that provide brokers with rich insights into the trading habits of their clients. Embedded within the FIX message logs are vast, and mostly untapped, quantitative client behavioral data that–given the right tools–can be used to optimize the client/broker relationship. Insights drawn from this data can lead to the identification of new revenue streams, assess client profitability and reduce connectivity costs and risk. GreySpark Partners believes that the objective for trading desk managers, in 2019 and beyond, is to leverage this data via business intelligence (BI) toolkits to garner timely insights that enhance the efficacy of their trading operations.

Historically, a broker’s ability to have a birds-eye view of client activity across the enterprise was limited. This was primarily because, as the broker’s client base scaled and their asset class and instrument coverage broadened over time, firms typically resorted to using multiple vendor-provided sell-side OMS platforms to trade on a diverse range of global execution venues. As analytical tools were incorporated into the OMS, insights only encompassed the universe of client trades flowing through each individual OMS.

To connect to trading counterparties, brokers typically built or licensed their own connectivity platform. A broker’s connectivity platform receives FIX messages from various external trading counterparties and routes the messages to one or more sell-side OMS platforms based on asset class, region or other predefined criteria. These legacy platforms did not incorporate the necessary set of tools required to analyze the data flows. The result is that brokers are virtually blind to the overall message flow from their clients and external trading platforms. For this reason, brokers are increasingly turning to managed FIX providers that are uniquely positioned to offer much needed insight and transparency. In this article, GreySpark assesses the benefits for brokers of using next-generation managed FIX services that are augmented by a BI layer that will enable brokers to:

  • Acquire a Comprehensive View of Client Flow – Improve low-touch customer relationship management and open up new revenue stream possibilities.
  • Reduce Costs – Empower business heads and IT operations teams to reduce OMS and Order Routing Network vendor costs as well as to determine the true net profitability of client relationships.
  • Facilitate Real-time Business Transparency – Provide an analysis of client order flow to better understand client trading behavior and direct technology resources accordingly.

The transparency of client flow and the insights afforded by the detailed analysis of FIX messages is a game changer for everyone touching the client trading workflow process–be they business, risk or technology focused. Figure 1a shows how a broker’s understanding of activity is fragmented when viewed through multiple OMS’ that do not provide a consolidated picture of client trade flow. Figure 1b shows how a managed FIX provider can aggregate data from across the enterprise, and an associated BI toolkit can be used to visualize insights from that client data. Because the managed FIX provider is vendor agnostic and offers access to all OEMS providers and order routing networks, they are perfectly situated to provide a global view of client connectivity along with increased analytics and transparency.

Figure 1: Illustrating (a) the Fragmented View of Client Flow via Traditional OMS Vendor-provided Client Connectivity Networks & (b) the Consolidated View via a New Generation of Managed FIX Provider

Source: GreySpark analysis


Client Order Flow Insights to Enhance Customer Relationship Management & Generate New Revenue Streams

The trend for trading desks is to combine high-touch and low-touch services into a converged order/execution support model. This is driven by the increasingly commoditized nature of low-touch trading systems. By leveraging BI tools that analyze FIX messages using low-touch channels, brokers can tailor their order/execution services to each client’s specific objectives. The business insights uncovered can identify new trading opportunities with clients. Identifying low-touch client trading patterns and behavior, leads to stronger broker/client relationships and, ultimately, enables brokers to defend and grow low-touch client market share (see Figure 2).

Figure 2: Client Trading Profiling Tools to Enable Real-time Benefits for Broker Business Lines & Technology Teams

Source: GreySpark analysis


Optimizing Client & Vendor Cost Management

As brokers grow their electronic businesses and expand their client base, the level of client quality may fall. To strategically optimize the business growth vs. business effort trade-off, brokers must be able to rank clients based on overall client profitability (commission minus expenses) to distinguish between the client relationships they should nurture versus those they should discontinue. To achieve this, they must understand all of the costs associated with that client’s trading activity. GreySpark believes that having the tools to analyze client profitability will lead to better margins and more focused client support.

The variable component of order, execution and connectivity pricing is generally based on the level of trading activity. The complexity of charges relating to network channels and EMS/OMS fees are high and, therefore, is an area where a lack of transparency can be especially costly for brokers. Currently, there is no easy way for the broker to reconcile and validate vendor invoices. To reduce instances of overcharging, and to ensure that payments are made only for services rendered, back-office operations staff have to manually reconcile the connection charges against a tally of the FIX connections enabled or volume traded–this is a labor-intensive and highly fallible process that can take a significant number of hours each month. Session data garnered by a managed FIX service can be analyzed using BI tools to enable brokers to easily validate vendor invoice charges and–crucially–to allow them to challenge vendor invoices where overcharging may
have occurred.

Real-time Business Transparency to Enable IT Operations Teams & Risk Managers to Support Front-office Trading Activities

GreySpark believes that broker risk managers and IT operations personnel can benefit from the ability to observe client FIX message logs comprehensively, and in real-time, through the lens of BI tools linked to a managed FIX platform. Specifically, those BI tools should be designed to provide broker IT operations with the insight required to ensure client trading operations are functioning at an optimal level across a variety
of scenarios.

For example, those types of BI tools can provide broker trading desks with benefits related to:

  • Connectivity Problems–Are there connectivity issues between the institution and the broker, and if so, what is the most recent properly processed message between the two counterparties?
  • Unexpected Changes in Client Environment–Did something change in the client environment that is causing abnormal trading behavior?
  • Fat Finger Errors–Based on historical trends, is the client sending in unusually large trades, and if so, does it breach the predefined, broker-set thresholds?

Those types of scenarios in which a BI tools layer is used in concert with a managed FIX platform facilitate the creation of transparency of all client trading flow within the broker’s operations from front to back.

Enabling the Digital Transformation of the Client Broker Services Paradigm

Visualizing the BI toolkit’s analyses via a shared web interface allows the broker’s sales, CRM, connectivity risk and operations teams to enable the creation of:

  • Client Trading Profile Analytics–To analyze client trading activity forensically in real-time versus historical benchmarks to identify abnormal trading behavior.
  • Net Client Profitability Analytics–To ensure that the OEMS, order-routing network and execution/clearing charges are justified for each connection.
  • Vendor Invoice Reconciliation Analytics–To enable reliable and timely reconciliation of vendor invoices with actual client connectivity and session data.
  • Data Analytics–To provide robust business and technical level transparency of client trading activity.

As such, managed FIX platform vendors like Itiviti’s Managed FIX Service stand apart from their competitors due to their ability to amalgamate FIX message traffic into an intuitive business focused, web-based dashboard. The benefits of such an analytical toolkit combined with a proven and mature global service, can ripple through the firm to enhance trading strategy and operation (see Figure 3). GreySpark believes that a BI toolkit that can analyze and draw insights from FIX messages relating to all trading across the firm is an example of the next generation of managed FIX services.

Figure 3: Benefit Paradigm for BI Toolset Layer of Itiviti’s Managed Fix Network Ecosystem

Source: GreySpark analytics


GreySpark Partners is set to publish a full white paper exploring the managed FIX services landscape from a vendor provider perspective in September 2019