Bloomberg News

FIX Publishes European Standards for Reporting Trading

May 29, 2012

FIX Protocol Ltd., the London-based organization that owns the global messaging format for financial trading, published a set of European guidelines on how banks should report their equity trades.

Brokers and banks should tag their trades using FIX’s standards so fund managers can tell on which exchange or alternative trading system the order has been executed, FIX said in a statement today. The protocol would also enable them to see whether the transaction occurred in a so-called dark pool, where prices aren’t publicly disseminated, or a lit market.

The guidelines follow requests from fund managers seeking transparency on where and how their trades were executed as market structure and trading practices grow more complex, according to FIX. Since the Markets in Financial Instrument Directive legislation was introduced in 2007 to spur competition, volume has spread across alternative venues such as Bats Chi-X Europe that vie with London Stock Exchange Group Plc (LSE), Deutsche Boerse AG and NYSE Euronext. (NYX:US)

“The quality of venue information from the brokers has been very patchy and inconsistent,” Chris Sims, co-chair of the EMEA Business Practices Subcommittee at FIX, said in an interview. “The standards work kicked off in the U.S. We have a common global standard and it’s a nice straightforward read now. It was a painful process before.”

Trade Flags

The guidelines should also flag whether a trade was agency, on behalf of a customer, or principal, on behalf of a bank’s own account, and whether it was executed passively, by posting liquidity, or aggressively, by taking liquidity, Sims said. Under the Mifid rules, markets and brokers are permitted to report transactions to any exchange, venue or third party, or publish it on their own website. The European Union is now reviewing the legislation.

“We welcome all industry initiatives designed to provide the buy side with greater transparency over how and where their orders were executed,” Guy Sears, a director at the Investment Management Association, said in an e-mailed statement. “As the equity markets become ever more complex, algorithmic trading strategies are increasingly used by brokers in the quest for best execution. Buy-side firms need to understand how their liquidity interacts in the markets.”

Piecemeal data also complicate attempts to benchmark the performance of traders executing orders for pension and mutual funds, analysts including Simmy Grewal with Boston-based Aite Group LLC in London, have said.

The lack of a common source of data has frustrated issuers who may not know where their shares are trading. It has also led to double- and triple-counting of volume in some segments as primary markets such as the LSE lost their role as a funnel for information, according to Grewal.

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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