The industry-driven standards body, FIX Trading Community, has launched a new set of message types geared for the post-trade space by supporting periodic future payment management. Use of these new message types will improve operational efficiency of this highly manual process. In a quick Q&A, we explore these new messages and future plans for repo, securities lending and more. Both Laurence Jones (LJ), Co-Chair of FIX Trading Community’s Global Post-Trade Working Group and Director, Post Trade Strategy at Traiana and Lisa Taikitsadaporn (Lisa T), FIX Technical Project Manager, FIX Trading Community and Managing Partner, Brook Path Partners, Inc, share their views.
Q. Can you tell me more about the new set of messages? Explain how many new messages are included, what are their numbers and what specific post-trade payment processes are they addressing?
A. Lisa T: In phase 1 of this initiative 4 new FIX message types were introduced: PayManagementRequest (35=DY), PayManagementReport (35=EA) and two corresponding messages that serves as acknowledgements. These messages serve to address the current manual-intensive operational aspects of confirming scheduled or periodic future payments that need to be made between counterparties during the life of a swap contract, for example, where certain payments need to be made between the parties based on contractual agreement.
It should be emphasised that these messages do not initiate an actual bank transfer or remittance instruction. Messages to support that process are still under the SWIFT messaging protocol.
Q. What is the current process that will be replaced by the messages? For instance, is this fax and thus subject to manual error?
A. LJ: The current process for confirming periodic payments is highly manual, very fragmented and non-standardized. The formats used can be a combination of email, fax or even voice and therefore carries high operational risk. Providing a standard in a language widely used by the industry will open up the doors to a host of efficiencies. The process for confirmation of the payment sits upstream from shy physical instruction or cash movement, therefore parties must ensure they agree to the amounts prior to any payment instruction and settlement occur.
Q. What were the main drivers behind this particular launch of new messages? And why this area of the post-trade process?
A. LJ: The FIX Trading Community is very much a ‘by the industry, for the industry’ group that is in most parts led by leaders from the industry. This particular area has received a lot of focus in the last few years due to the lack of standards and automation. The natural shift was to look at where FIX could offer a continuation of services in post trade and this area was a perfect fit.
Q. Can you explain in more detail the types of operational efficiencies that will be achieved?
A. LJ: The efficiencies that can be achieved are wide reaching and vary per firm; for example, a smaller buy-side firm may be able to remove messy, complex spreadsheets and reduce operational overheads, while a large sell-side firm could achieve significant technological efficiencies through maintaining the same messaging language throughout the trade. Vendors would then be able to offer services around data normalization and centralization of process to support the participants.
Q. What are the expectations for adoption of this messages?
A. LJ: Several firms have already started to spend time on the new standards and are testing workflow and processes. The post trade working group would expect to see a wider adoption of this over the next 3 to 6 months once the first to adopt prove its effectiveness.
Q. Can you share any other areas the FIX industry subgroup on post-trade innovation is looking to address?
A. Lisa T: Specifically, for this initiative we have only just started to scratch the surface with Phase 1. There are plans for Phase 2 in which additional workflows will be analysed related to netting and likely further enhancements will be made to these messages to support these additional workflows and requirements.
FIX Trading Community initiatives to enhance the FIX Protocol is driven largely by our member community. Other active initiatives include Repo Working Group looking at establishing recommended practices around repo from trading through to post-trade and related collateral workflows to support Repos; Securities Lending and Borrowing (SLB) Working Group which currently is focused on the requirements for clearing of SLB contracts, specifically in the US, an initiative lead by the Options Clearing Corp; and a big push to ensure FIX is able to support the reporting of securities financing transactions to trade repositories to meet EU’s SFT Regulations (SFTR).