FIX Protocol - an update Sigurd Hogsbro, Electronic Trading Consultant, Ecominds Kevin Houstoun, Consultant to HSBC Investment Bank Co-Chair Global Technical Committee FIX Protocol Limited (FPL) Burgenstock September, 2006

September 2006Copyright (c) FIX Protocol Ltd.2 Standards Used them Use open standards Use the most widely adopted Best support from vendors This means FIX in front office ISO physical settlement FIXML futures clearing FIX / ISO continue to work on pragmatic approach

September 2006Copyright (c) FIX Protocol Ltd.3 What exactly is “FIX”??? FIX is NOT: Software Hardware Network Trading system, exchange, or market Programming language Rather FIX is: A series of written, public-domain specifications Seven numbered versions – five in use today Each new version adds capability Governs connectivity and content Messages text-based, but in “tag = value” or FIXML format Tag/Value Example: “172 = 0” means “SettlDeliveryType” of “DVP” FIXML Example: 0 Common vocabulary Example: “AvgPx” means “average price” to all

September 2006Copyright (c) FIX Protocol Ltd.4 FIX Protocol Highlights The FIX Protocol is an open protocol specification (not a software implementation) developed via an open process by the industry participants who use FIX for their business The FIX Protocol celebrated its 10 year anniversary in 2004 FIX Protocol versions: 2.7, 3.0, 4.0, 4.1, 4.2, 4.3, and 4.4 Geographic/product expansion (in order): U.S., Europe, Japan, Asia/Pac, Derivatives, Fixed Income, Foreign Exchange Increasing emphasis on the exchange space There are 250 vendors with FIX-based products and services listed on the FIX website. Open source FIX software also exists

FIX Message Flows

September 2006Copyright (c) FIX Protocol Ltd.6 FIX Order Flow Investment Manager,QFII or Domestic Broker/Dealer Order Confirm IOIs & Advertisements Don’t Know Trade Order Done for the Day Execution Rpt (Partials)

September 2006Copyright (c) FIX Protocol Ltd.7 FIX Post-trade Flow Broker/Dealer AllocationAck (Received) Booking & Allocation (Breakdowns) Affirmation Block-level Accept Settlement Notification to Agents/Custodians Confirmation Investment Manager,QFII or Domestic

September 2006Copyright (c) FIX Protocol Ltd.8 Exchange preferred message flow Exchange Order Order Confirm Execution Rpt (Partials) Done for the Day

Evolution of FIX Functionality

September 2006Copyright (c) FIX Protocol Ltd.10 FIX Functionality Matrix fixprotocol.org/functionality

2005 FIX Global Survey Key Findings

September 2006Copyright (c) FIX Protocol Ltd.12 FIX Global Survey Results (Nov 2005) TowerGroup was retained by FPL to survey the global FIX community. The goal was to determine on a global basis various trends around current and future use of FIX as well as barriers and opportunities to further FIX utilization. Survey Demographics Number of Responses Responses Buy-Side Survey153 Sell-Side Survey168 Exchange Survey 49 Vendor Survey210 TOTAL580 All information and materials in this report are the property of FIX Protocol Ltd, and TowerGroup and are confidential and proprietary and subject to copyright and intellectual property protection under US law. All rights reserved, FIX Protocol, Ltd and TowerGroup, No further republication or distribution is allowed without prior written consent. FPL Membe r 48% 78% 68% 57%

September 2006Copyright (c) FIX Protocol Ltd.13 FIX Global Survey Results (Nov 2005) In the next 24 months, buy-side and sell-side firms both indicate plans to focus significant efforts on leveraging FIX across non-equity products Buy-SideSell-Side EquityProducts: FXDerivatives Fixed Income Current Support Current + Future: Equity: 67%, FI: 67%, Deriv: 78%, FX: 69% Current + Future: Equity: 51%, FI: 65%, Deriv: 75%, FX: 67% % of Total Responses

FIX getting FAST

September 2006Copyright (c) FIX Protocol Ltd.15 The market data catalyst Market Drivers Best executions Direct market access New Products New Participants Innovative Trading Strategies Market Structure Changes Regulatory (Reg NMS, MiFID) Dynamic pools of liquidity Innovation in Technology Electronic Trading Algorithmic Models Reliance on Market Data for Decision Making Ubiquitous Trading Technology Market Data

September 2006Copyright (c) FIX Protocol Ltd.16 Peak message rates outpacing effective solutions Business demands are outstripping communications services and cost- effective bandwidth solutions More products, more listings, More price levels, more depth/data Increased demands for low latency Proprietary solutions are increasingly costly to maintain The industry is ripe for a radical shift

September 2006Copyright (c) FIX Protocol Ltd.17 Mission To define standard services for the reliable transport of FIX market data messages using implicit tagging and support for multicast and point to point topologies Market Data Optimization Working Group Charter Approach Consider additional optimization techniques that may further enhance market data delivery such as compression Garner participation and representation from all industry segments in order to develop a true standards-based solution Create a common, flexible, straightforward solution that will reduce integration costs Make allowance for non-market data related information to take advantage of the same optimizations

September 2006Copyright (c) FIX Protocol Ltd.18 FAST Protocol Factors that Influenced the Design Efficiency Compression Ratio Resource Consumption (CPU, memory) Ease of Use (Conceptual, Implementation, Operation) Costs Implementation Validation Deployment Operation Maintenance

September 2006Copyright (c) FIX Protocol Ltd.19 FAST Protocol Performance – Native Format ARCAOPRA CMENorEx

September 2006Copyright (c) FIX Protocol Ltd.20 FIX Adapted for STreaming SM (FAST Protocol SM ) FPL’s Market Data Optimization Working Group developed and demonstrated a series of techniques to radically reduce message size Very timely solution for real world volume and bandwidth challenges ↑ Number of trades, ↓ Avg trade size, ↑ Speed Quote volumes doubling year after year Algorithmic trading engines and DMA driving volume and need for speed Stat-arb and other trading strategies predicated on speed The FAST Protocol is another example of global market participants working together to solve real world needs A true solution, combine: Standardized message definition, business model, and content in FIX FAST Protocol applied to reduce message size and serve high-volume needs

FIXML for Post Trade and Clearing

September 2006Copyright (c) FIX Protocol Ltd.22 Giovannini Initiative Eliminate Barrier1 which is defined as: “National differences in the information technology and interfaces used by clearing and settlement providers should be eliminated via an EU wide protocol. SWIFT should ensure the definition of this protocol through the SMPG. Once defined, the protocol should be immediately adopted by the ESCB in respect of its operations. This barrier should be removed within two years from the initiation of the project” Giovannini Consultation Paper – January 2005 The current course of action states that: “It is mandatory for all Infrastructures and Participants active in cross- border Clearing, Settlement and Asset Servicing…to use ISO15022/20022 standards/syntaxes…in compliance with existing market practices” The status of Exchange Traded Derivatives: “Relevant expert bodies must consult on the feasibility and, if appropriate, recommend a plan to achieve compliance with the Protocol for Exchange Traded Derivatives.

September 2006Copyright (c) FIX Protocol Ltd.23 FIX – the Enabler FIX is the enabling technology for Electronic Trading A specification of what and how to communicate A document, not a piece of software, network, or service Protocol is truly open, specs are freely available to public Industry-driven messaging standard Market participants: Invented FIX to solve specific business needs Suggest changes to FIX and use to run their businesses Responsible for maintaining and promoting the spec FIX organization and process is very pragmatic Focused on meeting “real world’ needs in an efficient, community driven model