In an effort to lower the cost structure of IOI messaging, New York City-based NYFIX has begun connecting the buy and sell sides to its service. The electronic trading and execution solutions provider began leveraging its existing infrastructure between the buy side and sell side to pass IOI messages along its network in November 2005. The vendor hopes it will have all network users up and running on the as-of-yet unnamed IOI service by September.

Users will pay a flat monthly fee based on the size of the implementation, a structure that NYFIX reports lowers the cost of exchanging IOIs considerably. "The current model is very expensive for brokers," contends Andy Wilson, global head of the FIX network division at NYFIX. "We're anywhere from a half to a third of the cost."

September also will see value-added features, such as filtering, integrated into the product, adds Wilson, who notes that buy-side users currently are overloaded with information. "The information is overwhelming for the buy side," he asserts, stressing the need "to validate and filter data for the buy side so they only see what's relevant to them." According to an APR Smartlogik survey of the top 50 U.K. fund managers, only 32 percent of the information buy-side managers receive from sell-side counterparties is relevant to their immediate needs.

Pzena Investment Management, having already integrated NYFIX's FIX routing tool into its INDATA order management and portfolio accounting systems, went live with the IOI solution in November 2005. Keith Komar, principal and director of operations and technology at Pzena, notes that the filtering capability "really works toward giving us the information on the securities that we are interested in."

Trimming the number of messages sent to the buy side holds advantages for both sides of the trade, NYFIX's Wilson points out. "By creating this filtering mechanism, we want to bring out all of the noise," he says. "If you only get a hundred messages instead of a thousand, you may wind up trading twice as much."

Further, NYFIX hopes to end the long-standing unregulated practice of broker-dealers inflating the trading activity they report to the buy side by providing the means to validate that information against exchange reports. Buy-side users of the NYFIX IOI solution will be able to compare the trade-reporting data from both entities, ensuring the integrity of those numbers. "This will give the buy side a much clearer picture of who is doing what, and it will also keep the sell side honest," claims Wilson.

Morgan Stanley is among the first sell-side firms to start passing IOIs along the NYFIX pipe. "We want to service our customers how they want to be serviced," says Scott Lenowitz, managing director of technology for institutional equity at Morgan Stanley. Lenowitz says he expects a cost savings, but it will depend on the extent to which the buy side warms to the NYFIX solution. "It's client driven," he explains. "If NYFIX develops a product that has better functionality, better economics, ... then I think that they will win," he says.