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Much of the capital markets’ critical trade functions pass through FIX systems. A FIX connectivity issue or outage can lead to a breakdown in communication between broker and client, which can bring significant financial and reputational ramifications for the firms involved.

Monitoring the health and performance of FIX connections using a robust FIX monitoring framework allows firms to pre-empt problems and maximise uptime. In this article, GreySpark Partners, in partnership with ITRS, discusses the importance of financial firms having robust FIX monitoring frameworks in place and explores the key role of FIX in helping financial firms achieve operational excellence.

By GreySpark’s Elliott Playle, Research Analyst, Chris Chan, Senior Manager and Rachel Lindstrom, Senior Manager

In 1992, the Solomon Brothers and Fidelity Investments introduced the financial market’s first universal translator – the Financial Information eXchange (FIX) protocol. Until then, the communications and processes for the trading of securities utilised telephones and spreadsheets. Although this person-to-person trading methodology was perfect for nuanced negotiations and relationship building between the buyside and sellside, the manual data handling and recordkeeping sometimes led to indications of interest being lost or routed to the wrong trader. This ultimately reduced trust in the trading system. Even after computer networks for trading had proliferated across the globe, the lack of a standardised data exchange framework had led to networks and servers being unable to process data from different sources. The FIX protocol became a powerful tool to help overcome these challenges.

FIX is an electronic pre-trade, at-trade and post-trade communications protocol for the real-time exchange of securities transaction data. FIX has, arguably, evolved into the leading industry protocol for trade communications, allowing for efficiency, visibility and trade simplicity in a standardised framework.  The evolution of the FIX protocol continues to be industry driven and is managed by an independent body called FIX Trading Community. This organisation has a membership of over 270 firms from across the global financial services industry.

FIX messages play an inconspicuous, yet fundamental role in the flow of trade information between financial service organisations and are used across all asset classes. They are a vital bridge between buyside and sellside customers; it is no exaggeration to say that without them trade communications between a wide range of counterparties would be impossible. Today, the FIX protocol messaging is used across the full trade lifecycle, supplying critical information about securities trades between parties such as timings, execution quality and order composition.

Ultimately, FIX has become an integral part of capital markets firms’ technology stacks due to its ability to help facilitate fast-moving markets. The use of a standardised, automated protocol has bolstered trade speed and reduced reliance on human intervention. FIX has also lowered trading costs as best execution is more easily achieved by enabling sellside and buyside firms access to a wider range of counterparties. FIX provides a high degree of transparency, too, as it creates an easily accessible audit trail that is comprehensible to regulators should they want to review the data.

Why FIX Matters to Traders and IT Teams

FIX networks are unobtrusive, enabling users to benefit from their operation without being required to know the language or the workings of the technology itself. Nevertheless, it is important that traders have some awareness of the technology supporting their activities. For example, traders should know who to turn to if they need to troubleshoot an issue.

It is the responsibility of the IT support desk to ensure the FIX connection is always live and functioning smoothly, as well as identify and remedy issues as they arise. Issues can include system bottlenecks that result in higher-than-expected latency between the sending and receipt of FIX messages. Before each trading day commences, FIX system connectivity is ‘fired up’ between two parties, allowing for the bi-directional stream of messaging to commence. IT support teams test the quality of messages exchanged before the FIX session commences. Connecting parties must bi-laterally agree as to when sessions are to be started or stopped based upon individual system and time zone requirements. However, parties can connect and disconnect multiple times during a single FIX session. Given the number of FIX connections and configurations across numerous trading desks across all the different asset classes, the management of these connections is no easy task.

FIX Continues to Evolve

FIX is very much an evolving protocol, adapting to keep pace with technological and regulatory change. The protocol achieved ISO standardisation in June 2022. Then in April 2023, the FIX community added the Digital Token Identifier (DTI) ISO standard to FIX functionality, including digital assets on the list of asset classes it can support.

While FIX ETF connectivity has been available in the US for several years, this was not the case in Europe until 2023. In November, BlackRock, an asset management firm, announced the availability of FIX connectivity for European authorised participants. This enabled trade creation and redemptions to take place faster and with greater frequently across ETF markets. In doing so, BlackRock became the second ETF issuer in Europe to launch FIX connectivity after DWS, an asset management firm, launched its own FIX capabilities in September 2023.

Over the past decade, capital markets firms began to rely on FIX connectivity hubs rather than direct – or point-to-point – connectivity between the buyside and sellside. This has been driven in part by the replacement of enterprise platforms and applications with software-as-a-service (SaaS) solutions. Public, private and hybrid cloud models are attractive as they allow financial firms to reduce their CapEx by utilising network infrastructure in the cloud. The implication for FIX networks is that there is a significant reduction in the need for direct connectivity, as illustrated in Figure 1.

Figure 1: Reducing the Number of FIX Sessions a Bank Runs Using a FIX Connectivity Hub
Source: GreySpark analysis

(Click on image to enlarge)

Figure 1 shows how a connectivity hub helps banks to reach more clients with less FIX sessions. The FIX connectivity hub also benefits the buyside, as they can each reach multiple sellside parties via a single FIX session. The use of connectivity hubs ends reliance on inefficient point-to-point connections and creates a frictionless, universal trade data and communication network. Crucially, the FIX connectivity hub provider ensures the reliability and interoperability of the system is maintained on their end, which reduces FIX network support costs for both buyside and sellside firms.

Issues with Standalone FIX Systems

FIX is a complex protocol that requires extensive operational expertise to manage the system through which FIX messages pass. Support teams must be able to quickly identify system redundancies or latency issues before they become problematic. Some of the issues that come with FIX systems are:

  • Connectivity Issues – Connectivity issues are not always complex; for instance, they could stem from a misunderstanding between a sellside firm and one of its clients about when a session starts. Other major contributors to failed FIX connectivity are messaging configuration discrepancies, caused by the message sender and intended recipient using different versions of FIX.
  • Manual Troubleshooting – A key problem with FIX messaging architecture is that support teams must monitor and analyse FIX message logs manually to identify latency and order issues. For example, when a FIX order message is sent by a buyside client to a sellside trading desk, FIX will also send a timestamped message back to the client notifying them of the message’s receipt once the sellside’s OMS has processed it. Troubleshooting – such as identifying order mis-executions or excessive latency – requires IT support to search through all the timestamped messages. For an organisation that does thousands of transactions per day, this search can be a laborious and costly task for IT support teams.
  • System Outages – The most significant problem that can arise for the wider firm is a system outage, as this can significantly disrupt the flow of the FIX messaging system. Outages can have catastrophic financial consequences for the trading parties involved. After an outage, it is essential that when the FIX connection returns, no duplicated messages are erroneously created. To end the outage a connection must be re-established with the other party. The sequence number of the last FIX message for each party must match for the interaction to resume. Some systems will resend messages to ‘catch up’ to the original system after the connectivity breakdown to ensure the message has been successfully sent despite the glitch. Unfortunately, this can lead to orders being duplicated and reconciliation difficulties.

The Consequence of System Outages

In 2023, system outages occurred for several high-profile capital markets firms, including DBS Group Holdings, Euronext, London Stock Exchange Group (LSEG), NASDAQ’s Nordic Venues, New York Stock Exchange and SIX Swiss Exchange. The LSEG outage in October 2023 halted the exchange of shares of the food delivery app, Deliveroo and fashion retailer, ASOS, among others, causing not insignificant reputational damage to the exchange as a result. Adding to London’s woes, the London Metal Exchange suffered a five-hour outage in 2022, citing a power outage at a third-party data centre. This left traders to execute orders over the phone and led to the loss of vital real-time trade quotes.

A recent survey of 66 financial firms showed that while nearly half had experienced outages with minimal impact (between 2018 and 2020), 32% had faced an outage that could be considered notable, serious or severe (see Figure 2).

Figure 2: System Outages by Degree of Severity for 66 Financial Services Sector Firms from 2018 to 2020
Source: International Banker

(Click on image to enlarge)

In response to these recent incidents, the FIX community is drawing up a standardised messaging framework for the reporting of outages. This is so that sellside firms can quickly notify and update their clients on any market activities in the immediate aftermath of a disruption. One format being devised is the creation of a standard set of pre-defined FIX messages which use machine-readable feeds that can be incorporated into trading platforms. Another is delivering communications via web service or email in a human-readable format.

The status of FIX sessions connectivity between all exchanges, sellside and buyside counterparties, and FIX hubs in the cloud is of extreme importance to maintain the integrity of trading. Firms need tools to monitor FIX messages to stop system failures at source and prevent any financial and reputational damage.

The Importance of FIX Monitoring

Given the complexity and intricacy of the FIX protocol, it can be susceptible to a wide range of malfunctions and bottlenecks that may not be easily detectable in real time by the human eye. As highlighted above, failure to detect and properly mitigate risks can lead to disruptions that have catastrophic consequences for the firms involved. Even a momentary loss of connection could be the difference between an order with a high dollar-worth being executed or not. As a result, it is vital that an automated, robust, holistic and forensic FIX monitoring framework is in place to mitigate risks by locating issues in the FIX system before they have a costly consequence.

There are two connectivity types that must be monitored by the sellside: client FIX connectivity and market FIX connectivity (i.e. to a trading venue). Client FIX connectivity monitoring assesses the FIX connection between the buyside and sellside, measuring aspects such as latency and order status. Market FIX connectivity monitoring, meanwhile, assesses the connectivity between the sellside firm and exchange. Market execution monitoring is not always done via FIX, with this being left to the discretion of the sellside firm. Figure 3 shows a typical FIX landscape in a sellside firm and illustrates where a FIX monitoring tool that can support both types of FIX connectivity should be placed.

Figure 3: FIX Connectivity of a Sellside Firm and How 360 Monitoring is Achieved
Source: GreySpark analysis

(Click on image to enlarge)

This 360-degree FIX monitoring tool can help firms’ operations in several key ways including:

  • Minimising Operational Risk – A FIX monitoring solution is mainly used for troubleshooting. The monitoring solution can help detect issues in real time but can also be used to carry out a post-mortem into problematic events. This reduces the likelihood of the same issues arising again. For example, a FIX monitoring solution can detect latency levels and track order statuses between the buyside and sellside in a live environment, while also providing notifications to the user. This allows bottlenecks and issues to be identified before they become critical. If disruption has already occurred, FIX monitoring solutions can automatically analyse log files and data to identify the cause of the disruption and mitigate this risk going forward.
  • Reducing Costs – FIX monitoring can provide increased visibility into a financial firms’ transactions, highlighting pain points and allowing for future cost reductions. As FIX monitoring systems provide complete, instant traceability of order messages, they also show the composition of a specific executed order. Large orders are often broken up into ‘child orders’ so that the trader can judiciously find counterparties to execute the whole amount. Analysis of the FIX messages allows the client to see the execution quality and pricing for each part of the order. This invaluable information may result in the client adjusting its trading strategy.
  • Lowering inefficiencies – FIX monitoring can help reveal inefficiencies in financial firms’ product lines. For instance, historical latency and inactivity data obtained from the FIX monitoring system may lead a sellside firm to cut ties with a client. This insight could also allow the firm to optimise its trading hours based on average latency levels experienced at certain times.
  • Complying with Regulatory Obligations – From a regulatory standpoint, firms are expected to provide regulators with various trade and systems data depending on their jurisdiction. A FIX monitoring solution allows firms to do that. Given that the European Securities and Markets Authority (ESMA) published a report in May 2023 outlining minimum requirements that venues are expected to meet in the event of an outage, regulatory pressure to monitor FIX traffic in Europe is greater than ever.

Although FIX protocol is now a mainstay of the capital markets industry, it is not bulletproof. Failure to adequately monitor the FIX system leaves firms vulnerable to major financial, operational and regulatory perils. Due to the high number of recent system outages in the capital markets space, firms must be vigilant when it comes to proactively managing operational processes. Figure 4 illustrates how FIX monitoring can prevent a firm from becoming embroiled in an outage management process.

Figure 4: Five-step System Outage Communication Framework
Source: ESMA

(Click on image to enlarge)

What to Look for in a Best-in-class FIX Monitoring Solution

Ideally, FIX monitoring solutions should give forensic insight into a firm’s FIX systems and provide firms with the necessary tools to mitigate operational risks and reduce costs. With FIX protocols consisting of a complex network of electronic trading workflows and infrastructures, oversight can be challenging. Therefore, a convenient, all-in-one monitoring solution is a prerequisite for the smooth operation and management of a FIX network. Additionally, the solution should be versatile enough to monitor different production environments, such as on premise and in the cloud.

Ultimately, FIX monitoring gives financial firms full control over their trading operations, enabling them to maximise operational efficiency and mitigate critical risks to their operations. While the FIX protocol itself is a messaging gateway, its sophistication requires a monitoring framework alongside it to minimise human error. Monitoring FIX in a comprehensive, holistic platform is an imperative to confidently ensure business efficiency and diagnose critical business issues that could negatively impact both the firm and wider market.

With system outages growing in ubiquity in the increasingly electronic capital markets, and against a backdrop of stringent regulatory demands, the importance of FIX monitoring cannot be downplayed. Successful monitoring of FIX could be the difference between firms achieving operational excellence, or instigating financial and reputational turmoil that could also have knock-on effects for the wider industry.