Convention on using derivatives tags on equity flow

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Imported from previous forum

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What is the convention for expressing derivatives idea in equity flow? Will it cause problems both in business and systems if a tag is “borrowed”?

In particular, if a buy side wants (needs) to inform the sell side that a buy order is to cover a shortsell position. Can tag 77 be used when tag 77 (PositionEffect) is for use in derivatives omnibus accounting?

Otherwise, how should that be tagged in FIX 4.2 and above?

http://www.fixtradingcommunity.org/pg/discussions/topicpost/167888/buy-to-cover
http://www.fixwiki.org/fixwiki/54 (see the note on the Buy to Cover)
Extracted here for everyone’s convenient: See also PositionEffect. For example Buy to Cover would be specified with Side = 1 (Side/1_Buy) and PositionEffect = C (PositionEffect/C_Close).

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Daniel,

this one is difficult to answer in general. Fields are not formally defined as being reserved for a specific asset class but fields have defined semantics which limits their use to a certain extent. Bilateral agreements often govern (mis-)uses of standard fields.

Your use case is about conveying the reason(s) behind the submission of an order, i.e. part of a trading strategy. I think this would be a useful extension of the FIX application layer to have a new field representing the main reason for order entry, opening it up for user-defined values above 100. We already have reasons for more specific items such as the reason for short selling (tag 853) or the reason for a short sale being exempt (tag 1690).

My recommendation is to stay away from PositionEffect to convey something that may apply in a similar way to derivatives, i.e. entering an order to cover for another position.

Regards,
Hanno.

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Hi Hanno,

Thanks for sharing your view. This use case is actually for regulation purposes. The exchange needs to be informed (and so they can distinguish) when a buy order is a normal buy order or a cover for a previously short sell order.

So when you say it is a useful extension of the FIX application layer, do you mean there is currently no way of expressing this?

Regards,
Daniel.

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Yes, I am not aware of a way to explicitly convey usage of a buy order to cover for a short sell order or position resulting from an execution of that order. You can convey that a short sell order is covered by CoveredOrUncovered(203) and reference the covering order with RefClOrdID(1806). The reference can also work the other way so that the regulator can obtain a mapping to see if the executed quantities actually match. The buy order alone is not enough to cover for an existing short sell position.

If it is not about linking orders but linking trades you can use the fairly new component RelatedTradeGrp to show that the risk of the short selling has been adequately offset.

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Hi Hanno,

The tag 203 is also stated as used for derivative products, such as options (http://www.fixwiki.org/fixwiki/203). If we take system implementation complexity aside, how strongly do you feel about (mis-)uses of standard fields purely from a FIX standard perspective?

Also, what does it take to have a new field representing the main reason for order entry (user-defined values above 100)?

Daniel

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In the case of tag 203, I do not see this as a mis-use as it can covey coverage for an order regardless of asset class. The comment may simply be too restrictive in this case and only reflects the use case known at the time it was introduced. Mis-use of standard fields is never a good thing but the definition of “mis-use” is subject to interpretation. Not sure that helps to answer your question.

Adding a new field to the FIX standard requires a Gap Analysis proposal submitted by a working group or committee, see http://www.fixtradingcommunity.org/pg/file/fplpo/read/1437402/gap-analysis-specification-proposal-process for details.

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Hi Hanno,

I found this link explaining that the tag 203 is for conveying a ‘covered call’ as in the case when a short call combined with a long position in the underlying instrument: http://www.fixtradingcommunity.org/pg/discussions/topicpost/168710/exact-usage-of-tag203coveredoruncovered-for-options

Also, I have worked out that the reason brokers need to classify the purpose of the orders is for the exchange to calculate the total open short positions.

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In reading that post I now believe you have started this thread with a different use case. You want to convey that an order is entered to establish coverage whereas the intention of tag 203 as described in the thread you refer to is to convey that coverage for an order has already been established prior to its entry. You need to convey that an existing position is now being covered with the order you enter. Hence I believe a new field OrderEntryReason with 1=“Coverage for short sale position” would be a good proposal.

A FIX Gap Analysis for such a small extension is straightforward. If there is a regulatory context (which seems to be the case here), FIX can add a second field with the same name in the UDF range between 8000 and 8499 to support older FIX versions. Please see http://www.fixtradingcommunity.org/pg/structure/tech-specs/additional-resources/user-defined-fields/user-defined-fields-tab-4 for a list of sample fields for this purpose.