Moving Forward With FIX in South Africa Robin Strong, Principal Architect Charles River Development

Place footer here (Font is Arial 7 pt) Moving Forward With FIX The Current State Of Play –Barriers to FIX adoption –Common FIX Assumptions What’s “Hot” Right Now –The Next Months Further FIX Development –The Longer Term Plan

Place footer here (Font is Arial 7 pt) The Current State of Play Widely used in equity trading Handles large numbers of transactions Supported by all third-party equity OMS Supported by most sell side firms FIX 4.0 and 4.2 are most common standards Fixed Income and Allocations in early stages FX and Derivatives just getting started

Place footer here (Font is Arial 7 pt) Barriers to FIX Adoption Don’t have FIX engine or OMS doesn’t support FIX Required functionality is always in the next version of FIX Limited vendor support in local trading locations –Sell-side brokers –OMS vendors –Network coverage “Local” instruments may not be supported Don’t want to change internal workflows

Place footer here (Font is Arial 7 pt) Common FIX Assumptions Assumption #1: FIX is implemented with a universal standard Reality: –Basic equity is “plug & play”, but certification is required –FIX for basic equity trading is easy to implement –FIX network selection plays a role in extensibility and may determine supported features –Fixed Income and FX are still in formative stages –Many different versions of FIX are supported –Not all FIX workflows are supported by all brokers Cancel/replace Filled order adjustments –Flexible configuration is critical

Place footer here (Font is Arial 7 pt) Common FIX Assumptions Assumption #2: All FIX messages are supported Reality: –Most of the basic equity order flows are supported –List messages are still early stage for some brokers and OMS –Bid request messages are not generally supported –FIX allocations are not generally supported (including the complex workflows that are required for post- execution processing)

Place footer here (Font is Arial 7 pt) Common FIX Assumptions Assumption #3: FIX eliminates errors Reality: –FIX can significantly reduce common errors –FIX can significantly increase speed of trading –FIX ease of use can necessitate user controls Flexible system configuration to support workflows will help Limits and thresholds can help mitigate errors

Place footer here (Font is Arial 7 pt) Common FIX Assumptions Assumption #4: FIX is a moving target (4.0, 4.2, 4.4…) Reality –All core trading workflows are complete as of 4.4 –Focus had been on additional tags to support instrument definitions for other asset classes –Embedded FpML document solves this issue

Place footer here (Font is Arial 7 pt) Common FIX Assumptions Assumption #5: All asset types are supported in FIX 4.4 Reality –That’s true, there just may not be anyone on the other end of the line to receive your messages! –Embedded FpML is a brand new specification and not widely supported at all yet

Place footer here (Font is Arial 7 pt) Common FIX Assumptions Assumption #6: Fixed Income and Derivative workflows are only slightly more complex than equity workflows Reality –Exchange traded instruments are easier to trade –You don’t always know the exact instrument you want to buy! –The bidding process for bonds is complex and hard to automate (Thomson paid $500m for TradeWeb) –Most sell-side brokers have fixed income and derivative trading systems they supply to customers – not all support FIX

Place footer here (Font is Arial 7 pt) What’s “Hot” Right Now Algorithmic trading Best execution Allocations and post-trade processing FIX for Fixed Income FIX for FX and Derivatives

Place footer here (Font is Arial 7 pt) Algorithmic Trading Automated trading algorithms implemented by brokers Basic support in most OMS, some better than others Custom FIX tags, now “almost” standardised More complex algorithms need additional tags Some order routing networks (generally hubs) cannot easily support custom tags Potential regulatory issues (how can you prove that broker algorithm X gave you best execution?)

Place footer here (Font is Arial 7 pt) Best Execution FIX makes it easier to assess Best Execution –ITG TCA, Plexus, Elkins McSherry, Abel Nozer, QSG, etc. –Required for MIFID compliance Ability to track broker performance (slippage, execution times, etc.) Better commissions and fees management

Place footer here (Font is Arial 7 pt) Allocations & Post-Trade Processing Starting to become generally supported Will likely standardise around FIX 4.4 Complex workflows may not be supported by all OMS or sell-side firms Could require a separate settlements module(s) Custodians will likely stick with ISO Issues around maintenance of SSIs

Place footer here (Font is Arial 7 pt) FIX for Fixed Income Early adopters on FIX 4.2 and moving to FIX 4.4 FIX allocations supported Initial 4.2 development was custom solution but used 4.4 tags to ensure forward compatibility Initial workflows were “backwards” from OMS perspective Requires complex logic –Unsolicited executions –Order matching –Security master set-up –Allocation fairness criteria Requires organisational workflow changes Will require further development to truly succeed

Place footer here (Font is Arial 7 pt) FIX for FX and Derivatives Some centralised counterparties did not want FIX Early adopters on FIX 4.2 and moving to FIX 4.4 FIX allocations supported Requires complex logic –Pre-trade allocation messages –Non-blocking of trades –Fixed currency master definitions –Cancel/correct mechanisms Requires organisational workflow changes Will require further development to truly succeed

Place footer here (Font is Arial 7 pt) Further FIX Development FIX 4.4 is almost complete for most trading requirements Equity –Improved Program and List trading –Better algorithmic method support Fixed Income –Overcome end user objections –Support inventory and search mechanisms –Capture bidding process –Solve pre-trade compliance and allocation anomalies –Handle the data completeness requirements

Place footer here (Font is Arial 7 pt) Further FIX Development (cont.) FX –Hit the quote and RTP capability –Cancel/correct workflows Derivatives –Better handling of OTC products –Limited demand for this via FIX just now For everyone –Integrate the post-trade workflows (matching, confirmation, settlement instructions, etc.) –Better integration with ISO15022/20022, FpML and other industry standards

Moving Forward With FIX in South Africa Robin Strong Principal Architect Charles River Development