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FPL Allocations Breakfast Briefing: Towards a new STP Model

FPL Allocations Breakfast Briefing: Towards a new STP Model. Sponsored by:. 25 January 2005. FIX Allocation & Confirmations. Jim Kaye Goldman Sachs. FIX – A Quick Background. What is it? Industry-owned messaging protocol 10 years old

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FPL Allocations Breakfast Briefing: Towards a new STP Model

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  1. FPL Allocations Breakfast Briefing:Towards a new STP Model Sponsored by: 25 January 2005

  2. FIX Allocation & Confirmations Jim Kaye Goldman Sachs

  3. FIX – A Quick Background • What is it? • Industry-owned messaging protocol • 10 years old • De facto industry standard for front office communications • Used by hundreds of market participants • How does it work? • Defined messages using tag-value pairs • Can be transmitted over any IP network (including the internet) • Uses a ‘session’ to handle authentication, message delivery and recovery • ‘Pessimistic’ protocol (acknowledgements required) www.fixprotocol.org

  4. Generate one or more orders Fill/part fill some/all of the orders Communicate ‘ready to book’ Communicate allocation splits Affirm/reject allocations Generate trade confirmations Affirm/reject trade confirmations An Overview of FIX Allocations & Confirmations Give-ups, step-outs, soft dollars Pre-definedbooking rules Fee/expensecalculations New order single SSIs Execution reports Allocation Allocation ack Broker Dealer Investment Manager Confirmation Confirmation ack Settlement Settlement www.fixprotocol.org

  5. Why Use FIX? • Fits the process flow • Logical extension to FIX order routing flows • Allocations often a front office function • Consistency of data from front to middle office • Real time status availability through ‘ack’ messages • Supports complex booking requirements arising from, e.g. self-directed trading • Ease of implementation • Opportunity to leverage existing technology investment • Open protocol – network/vendor independence • Wide choice of technology suppliers • Data structures and standards • Flexible data structures for a changing environment • Simple mapping to ISO 15022/SWIFT delivery messages • Timestamps and audit trails www.fixprotocol.org

  6. Implementation – Things To Think About • Counterparty readiness • Can my trading counterparties support this? • If so, how? • Business process • Which products? • Which part(s) of the trade lifecycle? • Bilateral or central matching • SSIs…? • Technology • Existing infrastructure • Networks • FIX engines etc. www.fixprotocol.org

  7. Case Study 1 – Fax to FIX Sell side order management system Buy side order management system FIX engine Orders/ executions FIX engine FIX network Buy side middle office system Fax machine Sell side middle office system Allocations • Issues: • Not machine readable • Prone to error • No acknowledgements Re-keyed…    www.fixprotocol.org

  8. Case Study 1 – Fax to FIX (ctd) Sell side order management system Buy side order management system FIX engine Orders/ executions FIX engine FIX network FIX engine Buy side middle office system Sell side middle office system Allocations • Issues: • Machine readable • Can be processed automatically • Real time acknowledgements    www.fixprotocol.org

  9. Case Study 1 - Implementation • Counterparty readiness • Many sell side firms support this model • In place for a number of major buy side firms • Business process • Currently in use for equities/PT • Generally used in conjunction with Global OASYS • Technology • Many off-the-shelf OMS providers support this model • Some middle office system providers also support this • Most FIX networks support this • Zero messaging cost; low/zero implementation cost (apart from testing time) www.fixprotocol.org

  10. BUSINESS ENTITY IDENTIFICATION- REFERENCE DATA AND FIX 4.4 Simon Leighton-Porter VSAF.NET

  11. FIX and Reference Data • FIX and reference data seems like an odd combination • Why the emphasis on reference data when discussing a communications protocol? • Without standardisation and accuracy of reference data, any processing architecture is merely so much junk www.fixprotocol.org

  12. TAKING A BROADER VIEW • SO, WHAT ARE OUR AIMS IN DOING THIS STUFF? • REDUCE COST • REDUCE RISK Trade-date processing Settlement Client take-on Sales and trading FIX BUSINESS ENTITY IDENTIFIERS www.fixprotocol.org

  13. SQUARING THE CIRCLE • COMPONENTS OF A SUCCESSFUL, FIX-BASED POST-EXECUTION MESSAGING ARCHITECTURE • Hardware and applications • Connectivity • Interoperability and flexibility within a framework of well-defined standards • Matching • Business Process Management (BPM) • CONTENT - turn all the talk about data standardisation into reality by providing an identifier that supports the entire business process and is flexible enough to be used in any processing model • So, what does one of those look like? www.fixprotocol.org

  14. IBEI Defined • International Business Entity Identifier: ISO 16372 “IBEI is a global scheme for uniquely identifying business entities playing a role in the lifecycle of, and events related to, a financial instrument” “A business entity is an entity that is either regulated or on which due diligence is necessary under any jurisdiction” ISO TC68 SC4 WG8 Feb 2004 www.fixprotocol.org

  15. IBEI Model • Central utility • Concept of sponsorship • Core information will be free or available at very low cost • Data quality maintained by • Multi-source information • “Triggers” • Twilighting • Sponsor updates • Information from IBEI entities and IBEI users • NO LICENCE FEES • Value-added information will be available at additional cost • Cross-references to other commercial data sources • Scope for future developments • Settlement instructions • Payment instructions • Compliance-related information www.fixprotocol.org

  16. Role of the Sponsor • Centralised, using sponsors Registration Authority Sponsor IBEI ALLOCATION IBEI REQUEST Applicant www.fixprotocol.org

  17. IBIE Repository Data Content www.fixprotocol.org

  18. IBEI VALUE-ADDS • REDUCE COST • REDUCE RISK • SUPPORTS USE OF FIX POST-EXECUTION Trade-date processing Settlement Client take-on Sales and trading FIX BUSINESS ENTITY IDENTIFIERS www.fixprotocol.org

  19. IBEI SUPPORTS SSI FRESH • REDUCED COST AND RISK OF CLIENT TAKE-ON (Common to all processing models) • AGREED RANGE OF IDENTIFIERS FOR ENTITIES • IBEI CAN BE USED TO IDENTIFY LEGAL ENTITY, ALLOCATED ACCOUNT ETC • POTENTIAL USE AS SSI FRESH DATABASE TO SUPPORT MODEL 1 www.fixprotocol.org

  20. Buyside Sellside Allocation enriched with SSIs and, ideally, net money SSI Database Confirmation (1 per account) enriched with SSIs x2 and net money Affirmation SSI updates Global Custodian Local agent Local agent (I)CSD MATCH MATCH?

  21. SSIs Alvin Mullan UBS Investment Bank

  22. Introduction • SSI data within the FIX Allocation & Confirmation message flow • Electronic Capture of Standing Settlement Instructions (SSI) • Scottish Statutory Instrument (SSI) 2002 No. 39 The Sheep and Goats Identification (Scotland) Amendment Regulations 2002 www.fixprotocol.org

  23. Sellside Buyside Allocation + SSIs (inc PSET) & net money (ideally) MATCH Confirmation (1 per account) + SSIs x2 and net money MATCH? Affirmation SSI updates Global Custodian Local agent Local agent (I)CSD Model 1 – Buyside involved in SSIs • Notes: • Needs FIX 4.4 for Allocation • And FIX 4.4 or SWIFT MT515 for Confirmation www.fixprotocol.org

  24. FIX 4.4 SSIs in the Allocation message www.fixprotocol.org

  25. FIX 4.4 SSIs in the Confirmation message www.fixprotocol.org

  26. SSI baggage in FIX www.fixprotocol.org

  27. Sellside Buyside Allocation + Custodian & net money (ideally) MATCH Confirmation (1 per account) + SSIs x2 and net money Affirmation – needed? SSI updates Global Custodian Local agent Local agent (I)CSD Model 2 – Buyside opt out • Notes: • Can use FIX 4.2 for Allocation • And SWIFT MT515 for Confirmation • Or FIX 4.4 for both www.fixprotocol.org

  28. Sellside Buyside SSI updates Global Custodian Local agent Local agent (I)CSD Model 3 – Centralised SSI www.fixprotocol.org

  29. SSIs - building solutions • STPLite • SSI Fresh • Solutions Providers – many “harolds” • Generally accept: • custodian holds and maintains SSI data • data automatically issued to “local” or “central” database • adhoc query and response • real time access to custodian on a trade by trade basis NOT necessary www.fixprotocol.org

  30. SSI - data • Query data • Number • Country or Place Fund Manager ID • Custody Account of Settlement • Side (Buy/Sell) • Product, Security Identifier and Type • Effective date/time • Response or Pushed data • Cross-references to query (forming the “key” fields) • SSI Detail: • PSET • Agent and Agent Account at place of settlement • Custodian www.fixprotocol.org

  31. Nothing to do with sheep and goat identification and Scottish Statutory Instrument regulations SSIs – need for data standard • Delivery mechanism may vary • FIX/FIXML • SWIFT • File • Need to ensure we have an SSI data standard – clones like “Dolly” • SSIs for cash settlement www.fixprotocol.org

  32. Any Questions?

  33. FPL would like to thank the sponsors of this event: 25 January 2005

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