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Enhancing Settlement Efficiency through FIX Protocol in Multi-Listing Stocks

This briefing discusses the advantages of utilizing the FIX protocol for improving settlement processes, particularly concerning early detection of potential settlement failures. Key topics include the handling of commissions on FIX Execution Reports (ERs), management of Net Monies and Average Prices during allocations, and improved handling of multiple-listing stocks. The document illustrates practical examples, including order handling for Lukoil and considerations for custodial management across different markets. By adopting these practices, firms can better navigate the complexities of modern trading environments.

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Enhancing Settlement Efficiency through FIX Protocol in Multi-Listing Stocks

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  1. Scenario FPL Breakfast Briefing January 2005 Alvin Mullan UBS

  2. Introduction • FIX enables detection of potential settlement failures earlier • 1. Commissions on FIX ERs • 2. NetMonies & AvgPx on FIX Allocations • 3. Better handling of multiple listing stocks • Does not consider the central matching option www.fixprotocol.org

  3. Order for 1000 Lukoil, to be “waved” FIX New Order single Sellside Buyside ClOrdID1, OrdQty=600, Buy FIX Execution Report MATCH? ClOrdID1, OrderID10, Comm=8bp FIX New Order single ClOrdID2, OrdQty=400, Buy FIX Execution Report MATCH? ClOrdID2, OrderID11, Comm=8bp 1. Commission: FIX ERs • Notes: • Match Commission supplied on ER • Merge more than 1 order in a single Allocation www.fixprotocol.org

  4. Order for 1000 Lukoil, to be “waved” FIX Allocation Instruction Sellside Buyside AllocID9, ClOrdID1, ClOrdID2, OrdQty=1000, Buy,AvgPx, NetMonies, + Splits FIX Confirmation AllocID9, Account1, SSI*2 AllocID9, Account2, SSI*2 AllocID9, Account3, SSI*2 2. NetMonies & AvgPx: FIX Allocation MATCH? • Splits in Model 2: • Account1, Custodian=ABC • Account2 • Account3 • Splits in Model 1: • Account1, PSET=EuroClear, AgentsAccNumber=C • Account2, ditto • Account3, ditto • Notes: • Sell side matches NetMonies & AvgPx • Both SSIs on Confirmation www.fixprotocol.org

  5. 3. Multiple listings • ISN = US6778621044 (Lukoil) • RIC=LUKOY.PK, Sedol=2537432, “144a” line • RIC=LKOHy.F, Sedol=5060388 • RIC=LKOHyq.L, Sedol=3189876, “RegS” line • ISN = FI0009000681 (Nokia) • RIC=NOKIV.HE, Sedol=5902941 • RIC=NOKIV.AS, Sedol=5945418 • RIC=NOKIV.F, Sedol=5946154 • RIX=NOKBF.PK, Sedol=B02G9J7 • ISN = ES0177040013 (Altadis) • RIC=ALT.MC, Sedol=5444012 • RIC=ALDS.PA, Sedol=5843114 • RIC=,ALTDF.PK, Sedol= B02T9V8 • In Altadis, settlement failure may need actual market trades to correct www.fixprotocol.org

  6. Settlement of multiple listings: EC v DTC • Client selling, broker expecting to deliver to EC. Settles OK. • But in this case one of the client funds had holding in DTC • Settlement failure!E.g. Lukoil, broker has to do physical switch from the 144a to RegS to honour market commitment www.fixprotocol.org

  7. Model 1: EC v DTC • Buyside is involved in Settlement/SSIs • Option 1: Actively manage holdings into same location/depot at custodian • Option 2: Send Allocation with 2 PSETS600 deliver to EC400 deliver to DTC • Option 3: Send 2 orders: Sell 600 LUKOY.PK, 400 LKOHyq.L www.fixprotocol.org

  8. Model 2: EC v DTC • Buyside has stepped out of Settlement process/SSIs • Option 1: Broker applies default for the Global Custodian.- Custodian needs a process to switch stock between depot (DTC to EC). • Option 2: Broker queries Custodian for multiple listing stocks to determine where delivery is to be.- On client buys, broker would still use default per Global Custodian • Option 3: Client sends 2 orders from known holdings: Sell 600 LUKOY.PK, 400 LKOHyq.L- Broker delivers according to default per Global Custodian www.fixprotocol.org

  9. And there’s more? • Out of hours trading for EU Client for US domiciled fund • Other? www.fixprotocol.org

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