When start the legal responsability of a Sell Side


#1

Hi all.
I am currently having a discussion with a BuySide about the Pending New messages that we send and the boundaries of our legal responsability of their orders.

As a result of the double layer of controls in place, our OMS send the “Pending New” to the SS if the order has passed the first layer of checks, and then the “New” only if the order has entered the Market.This is the most common practice I have seen also digging this forum.

The BS argue that the “Pending New” status do not imply that the SS has taken the legal responsability of an order.

I answered that within the “Pending New” the SS can find the OrderID that we have assigned to its order, and this is the point that sign our reponsability.

The BS is not happy with my answer because, in its opinion, is “contrary to the FIX definition”.

I will be more than happy to get any legal note or best practice about this matter.

Thanks
Alessandro


#2

Hi Alessandro,

AFAIK there is no definition of legal responsibility in the FIX specs but other may know more…

I answered that within the “Pending New” the SS can find the OrderID that we have assigned to its order, and this is the point that sign our reponsability.

IMHO, if you tell them your assigned ID then this is of course a sign of taking responsibility.

On the other hand, it is also allowed to send a ExecType REJECT after a ExecType NEW if your client continues to insist on the NEW. Market entry could then be indicated using a RESTATED message.

But in summary, your way of doing things sounds reasonable to me.

If you need a more authoritative and elaborate answer most probably @hanno.klein from Deutsche Börse will answer you :slight_smile:

Regards, Jörg


#3

Hi Alessandro,

wherever I linked two partners (ECNs, SIs, Brokers, Prime Brokers etc) by FIX protocol the pending new was a technical confirmation but not a business confirmation.
And a point is: In the MiFID way it is expected that the order is taken care of within a couple (15) of minutes and forwarded to the market. This can not be the case when your (sell side) staff is out for a beer in the evening or the market is closed but the FIX engine is running. Or the Broker in Hongkong is currenty not online who will forward your order for some Aussie or philipine market.
For this situation the pending new has been invented.
In some rare cases it makes sense to take the pending new as a status where the order responsibility has completely been taken over by the sell side. And this should be put into the partner or SLA contract respectivley.
Don’t let business people make the technical staff solve their issues and topics. Kick the ball back into their field.
Take care, best wishes, Kind regards
Uli


#4

@jorgthonnes is right about FIX not defining a legal transition as this is defined (if at all) by the regulatory environment in which the communication takes place. However, my first question to @alessandro.caffarr is what the relevance of “taking over legal responsibility” is? Does this mean you can also ignore the order? I don’t think so, i.e. it is your responsibility to try to get it to state “New” without receiving another message from the submitter (by the way, BS is not a good acronym for the buy-side and, in Germany, neither is SS for the sell-side :wink: ). Second question is about “first layer of checks”. Are these syntax checks or already static functional checks (e.g. whether instrument exists)? Is the second layer about dynamic checks (e.g. whether instrument is currently tradeable) that only the matching engine of the market can answer? I suspect it is about your own checks vs those of the market where you are sending the order to.

Using “Pending New” is typically a convenience message for the submitter and should only be used if there is a large gap (minutes or even hours) between getting the order and accepting it. This can be caused by manual risk checks or bunching orders in a continuous auction model (executing orders every 15 minutes but technically accepting them any time).


#5

Your business and legal teams should define the responsibility of an order, not the protocol. Agreed with Hanno on pending being mostly a convenience for some OMS that included it in the order life-cycle .
Many electronic trading agreements will stipulate that the the buy-side is always responsible for the order. (unless managed by a desk)


#6

Hello @hanno.klein,
about your questions:

  1. Basically the legal responsability, as intended by the BuySide :grinning: , is referred to the responsability of the SellSide :grin: of any order that, due to technical issue of the SellSide, has not entered the Market.

  2. Our OMS works exactly as you suspected. The pennding new is returned only when we need to queue the order: market close; symbol halted etc.

Ale