Hello!
I am looking at revamping some of my systems to better support clearing workflows.
Looking around, I see that most clearing venues offer connectivity via FIXML and FPML. I see that FPML appears to dominate the Swaps clearing space, while FIXML is more general purpose.
Is there an industry standard I could follow here?
In principle, both FIXML and FPML are industry standards you can follow. Until 2012, it was recommended to embed FPML product definitions into FIXML messages and FIX still provides that capability. In 2012, FIX was significantly extended to natively cover the OTC derivatives space in the same way that FPML already did at that time. Background was the CFTC regulatory reporting requirements for OTC derivatives where you could choose between FIXML and FPML. FIXML already covered the non-OTC space very well and major clearinghouses such as the CME and Eurex chose FIXML as main standard for clearing.
You have come to the FIX discussion forum so that I do recommend the use of FIXML for clearing purposes across all asset classes. It depends on your existing systems and the infrastructure of your clients whether FIXML ultimately makes the most sense, i.e. gives you the business case you need to make the investment. FIX is well established for trading and may also make it easier for you if you have to take in trades for clearing. The FIXML syntax is the main FIX encoding used for clearing and can easily be translated to other FIX encoding such as tag=value.
Prateek,
Although you asked about clearing workflows I wanted to add in some info around trading (FIX vs. ISDA).
Typically, you have market data such as last sale price and quantity, bids/asks/quantity, oftentimes a published central order limit book, and sometimes some unpublished orders to buy or sell that can reveal themselves automatically later and/or be executed against, in some type of dark mode.
For active trading you need a reasonable number of traders on both sides, quite “fungible” things to trade, protocols for trading and clearing, and rules of engagement that are widely understood.
Instruments that generally follow the FIX protocol in trading include: just about any product that trades on an exchange (stocks, bonds, index and financial futures, standard options), plus all those products, similar in nature, that trade OTC in active dealer markets, plus FX. (Roughly - products that started trading typically in NY and are regulated by the rules of the NYSE, the SEC, plus their regional and international equivalents.) FIX protocol (including the FIXml) is the clear leader here.
Swaps, non-exchange traded derivatives and physical commodities (especially those that are made “fungible” by means of surcharges or credits after quality grading, and/or accounting for where they are specifically going to be delivered, that impact the final price) are different enough from the above to trade and clear differently. (Roughly - products that originally traded in Chicago, with contracts largely specified and standardized by the ISDA, regulated by the CFTC, plus their international equivalents.) Typically counter-parties follow a lengthy ISDA styled Master Agreement that covers many contract specifics, plus a much shorter Schedule that includes the custom negotiated terms. FPml covers those master agreements and schedule specifics. Things like grading and delivery surcharges/credits are covered in great detail.
With that as background in trading (very fungible - FIX, less fungible and more custom - ISDA) I transition now to expressing and sending out complex orders.
At FIX we have an algorithmic trading definition language (FIXatdl) which is very well suited to trading all the products that FIX has long dominated in. For instance, using FIXatdl you can express a trade that involves more than one financial instrument type, all under a single algorithmic trading strategy. This is also known at FIX as “cross asset” trading. For example: long an exchange traded interest rate future simultaneous with trading short, a ladder of treasury bonds at different durations. Another classic example: long one equity in a specific industry and short another equity in that same industry (a double alpha strategy that is intended to win even if the overall market goes up or down) often referred to as a “market neutral” strategy). FIXatdl algos may also be used to express most types of index arbitrage strategies.
We are currently working on the next version of FIXatdl and in particular improving its “multi leg / cross asset” capabilities. Currently we do not directly support expressing FPml protocol inside FIXatdl. However, if you ever envisioned doing cross asset / multi leg type orders that had a FPml order for say a ISDA SWAP on one side, against a group of exchange traded assets on the other, it would not be too hard to accommodate that type of trading.
All “multi asset” algo strategies must eventually be broken down into individual trades, and each of those may take its own optimal route. Likewise, the upper level “intelligence” in the algo can orchestrate and time those individual trades to achieve its overall objective.
Depending on your situation and use-cases your system may ultimately need to support both FIXml and FPml. However they are both quite straightforward protocols expressed in XML so there is much common ground.
To further elaborate, the rules system in FPml is expressed both in English (not meant to be directly machine readable) and in Schematron format. In FIXatdl the rules system is currently custom written (where it absolutely is machine readable) but conversion to Schematron format is not difficult, and is currently “on the prospective radar” for future FIXatdl releases.
If you anticipate needing to support both FPml and FIXml in your trading strategies, the FIXatdl working group would very much like to open a dialogue. Feel free to write me at rick@clbcm.com
Rick