The Financial Information eXchange (FIX) protocol has been providing a way for firms to exchange real-time trade information related to global transactions and markets since the early 1990s. But now the mainstream trade communication language is being extended specifically to deal with algorithms and shorten the time it takes to deploy new strategies.
The FIX Algorithmic Trading Definition Language (FIXatdl) provides firms that receive orders with a standard way to express those orders. Orders built with FIXatdl then can be sent easily from traders' systems to destinations via the FIX protocol.
Many buy- and sell-side firms, as well as vendors, already are moving forward to incorporate FIXatdl into their algorithm graphical user interfaces or rendering engines. Version 1.1 launched in March. For broker-dealers in particular, the process of updating and getting new or enhanced algorithms to buy-side clients reportedly has been trimmed from months to days, and even overnight in some cases, with the use of the new FIX standard.
"The way brokers historically supported algorithmic trading with FIX was that they created a suite of specific algorithms; each strategy has a set of parameters, and each parameter has a particular data type, such as character string or number price," explains Scott Atwell, manager of FIX trading and connectivity at American Century Investments and cochair of the FIX global steering committee at FIX Protocol Limited (FPL). "Brokers hand someone like me a large Word document or PDF or Excel file that contains all the strategies and parameters, ... and I have to [program] that. Then they go and change or add a parameter, and I have to go rebuild and test and go through the whole process again."
Using FIXatdl, however, the broker can provide that same information around algorithmic strategies -- parameters, characteristics and rules -- in a format that is machine-readable. According to Atwell and other market participants, this dramatically cuts down on the time and costs associated with deploying new or enhanced algorithms.
"It allows the person building the software to build the rendering, and then it dynamically renders on-screen," Atwell relates. "Then, once you fill out the screen, what comes out is the same FIX message. Adding a new broker and its suite of algorithms, or adding a new strategy or parameters, has become easier than if I had to go reprogram individual screens."
Atwell describes the adoption of FIXatdl as a "win, win, win," explaining that brokers can get their algorithms to customers faster, OMS and EMS vendors can implement ever-changing sets of algorithms with minimal programming, and the buy side gets faster access to new and innovative trading strategies. But he acknowledges that there was quite a bit of work done up front by the vendor and user communities on developing the rendering interface, the browser that displays the order entry screen. But, "Once you've done that," Atwell relates, "it is universal for whatever brokers you get updates from and also supports additional brokers within the same capability."
American Century, Atwell notes, is taking the standardization one step further, working on an open source rendering engine that his team will embed in the firm's proprietary order management system (OMS). He adds that with the OMS and FIXatdl work that American Century has done, the firm has been able to cut the algorithm programming cycle from a couple of weeks to a day or less, depending on counterparty testing and certification.
"You still have to test the algorithms, but I don't have to program code, recompile code, then test, program again and retest," Atwell says. "If a broker has 12 algorithms, I would go through a test script that tests four to eight cases for each one, and that can take hours. [Now] our brokers can test their files they're going to give us ... and see what it looks like before they send it to us, which cuts down on some of my work."
The Road to Acceptance
Despite the benefits, FIXatdl acceptance didn't happen overnight. Rick Labs is considered a pioneer and major driving force behind FIXatdl. He traces his work back five years to the beginning of an effort around FIX and algorithmic trading.
Looking back, says Labs -- who now serves as cochair of the algorithmic trading working group at FPL and also is a managing member of CL&B Capital Management -- broker-dealers initially were reluctant to share their intellectual property around algorithm specs. "Their trading edge was expressed in algorithms, and they differentiated themselves with those strategies," he comments. "So a prior request to broker-dealers to send into FPL their comprehensive algorithm specs did not get a lot of responses."
But the broker-dealers soon became concerned with the amount of time it took to get their trading jewels out to customers, and they became increasingly interested in automating the process, according to Labs. Yet the sell side "knew the buy side was represented by the tech vendors," he adds.
So Labs and his working group reached out to about five "top-ranking OMS system vendors," he relates. Out of that effort, the group came up with some initial requirements and a widget library. "It was a series of controls, or widgets -- like a drop down box, a check box, a label, etc. -- that everyone could understand and not have it be dependent on any kind of programming language," Labs explains, noting that these tools represented various strategy options, such as start and end times. "It took a long time expressing different strategies and finalizing the standard library of widgets, but that was gradually rolled up into version 1.0."
Taking into account the OMS community's needs, the working group then went back to the broker-dealers. The first version of FIXatdl, version 1.0, was released in 2008 with 15 brokers providing sample algorithmic files. According to Labs, the broker-dealers shared only their most-common strategies, but it was enough to create the template schema for FIXatdl.