FPL Urges FIX for MiFID's Data Challenges

Industry officials associated with the FIX protocol urged its adoption as an industry standard for market data to prevent a negative impact on transparency arising from the European Union's Markets in Financial Instruments Directive, at a meeting in London last week of FIX Protocol Limited, the standard's governing body.

"Under MiFID, transparency data could fragment and data quality could fall… To avoid this, agreement on the use of messaging protocols and data standards is vital," said Simon Leighton-Porter, co-chair of the MiFID Joint Working Group standard protocols subject group and director of software house Rapid Addition.

"MiFID effectively creates a virtual pan-European quote-driven market. Pre- and post-trade transparency are vital to price formation, but in order for price formation to happen, we need to be able to consolidate transparency data, and quickly," Leighton-Porter said.

"We certainly anticipate… fragmentation in markets… The challenge is consolidation of liquidity," said Glenn Bedwin, director of strategy and business at Thomson Financial. "We also expect significant fragmentation of trade reporting," he says, adding that the vendor is "certainly looking [at] FIX as a transport mechanism wherever possible" to help it deal with anticipated increases in the volumes of data.

Some firms are already using FIX to connect to MiFID-generated entities. For example, Merrill Lynch will use FIX to connect to trade reporting utility Project Boat and other trading venues, said Brian McClellan, MiFID technology program manager at the bank.

However, officials remain undecided on which iteration of FIX should be used to perform these tasks. The latest release of FIX, Version 5.0, includes a range of new tags to support MiFID's requirements, whereas Swedish vendor Cinnober, which is supplying the technology platform for Boat, uses FIX 4.4.

A Cinnober official says that when the vendor first defined the FIX protocol to be used in Boat, FIX 5.0 hadn't officially been released. "We also preferred to stay with a well-known and established version of FIX in order to facilitate an easy on-boarding process of new Boat members," says the official.

Will Meldrum, director at UK-based Markit, which is providing commercial support for the Boat initiative, said that the scope of the project did not require the full functionality of FIX 5.0. While "FIX 5.0 has additional functionality tailored to transaction reporting," Boat won't "initially provide transaction reporting," Meldrum says.

Instead, Boat will initially focus on MiFID's trade reporting obligations, which require firms to publish data to the market in real-time for securities traded on regulated markets. Transaction reporting, on the other hand, requires firms to report financial transactions across all instrument types and structures to an appropriate regulator on a batch basis.