FiXing Trade Execution Reports in Europe
FIX Protocol Ltd, the group promoting the use of FIX formats for executing trade orders, has just added a European flavor to a set of recommendations for the consistent set of information and data formats broker-dealers should use when reporting on executed orders to their customers.
The guidelines, initially produced in February 2011 by FPL's Americas Buyside Working Group for US trading venues were expanded to include European trade venues. At that time FPL suggested it would extend the use of the recommendations to Europe where the rise in alternative trading venues and algorithmic trading has made it difficult for fund managers to monitor where broker-dealers are executing orders and how.
"The buy side members of FPL expressed a clear appetite for greater clarity and consistency in reporting from their brokers. Working with members in different markets globally we have been able to update the guidelines so they deliver even greater insight to the buy-side community," says Brian Lees, co-chair of the FPL Buy-side Execution Venue Working Group in a statement issued by FpL. Lees, who helped develop the U.S. guidelines, is also manager of application development at the fund management firm Capital Group Companies in Los Angeles.
The FPL group wants sell-side firms to "tag" their trade reports with specific details using FIX protocols. The tags are designed to provide information on which trading venue or exchange the order was executed; uniquely identify markets, including market segments where it is appropriate to distinguish between lit and dark order books; whether the order was executed as a result of having traded passively or aggressively; and whether the trades were executed with the broker-dealer acting in an agency or principal basis.
Using FIX tags allows the reports to be automatically fed into internal systems -- such as order management or risk management -- and prevents misinterpretation by fund managers. Reports which rely on inconsistent information and data formats requires fund managers to spend hours interpreting information and increase the potential for bad investment decisions. Two key areas of inconsistency: different codes used to identify the same trading venue or mislabeling an order executed in a dark pool as executed in a lit order book because the same ID was used for both pools.
In the statement issued by FPL, Jim Kaye, co-chair of the FPL EMEA Business Practices Subcommittee and director of product development for European Execution Services at BofA Merrill Lynch cites the benefits to broker-dealers in having consistent standardized trade execution reports as improving communications with clients to adapt algorithms and trading strategies. Officials working the new reporting formats were unavailable for further comment at press time.
Written by Chris Kentouris, Editor-in-chief (Chris can be contacted through Chris.Kentouris@hotmail.com)