Wall Street & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.


00:00 AM
Gus Hahn
Gus Hahn
Connect Directly

Derivatives Standards

Collaborating IT professionals at J.P. Morgan & Co. and PricewaterhouseCoopers (PWC) have spent the last half year hunkered down in their New York headquarters creating what they call FpML-Financial Products Markup Language-an XML (eXtensible Markup Language)-based protocol that allows for information sharing and electronic dealing of derivatives and foreign exchange products.

Officials at both Integral and J.P. Morgan/PWC say that the timing of their launches is based in part on the proven success of XML-based e-commerce
initiatives in non-financial industries, such as manufacturing. The success of other XML initiatives in the financial industry, such as FIX, also played a role. FIX is widely accepted globally, and an XML version, called FIXML, is being planned.

FinXML specifications have been available over its Web site (www.finxml.org) since July, and since that time there have been ""1,000-plus downloads from every major financial institution,"" says Integral CEO Harpal Sandhu. Integral is currently forming a FinXML consortium whose purpose will be similar to that of J.P. Morgan/PWC's technical committee, but Sandhu declined to provide the names of any consortium members.

Industry insiders say that while financial firms will begin implementing FpML and FinXML over the coming months, it could take several years before both standards become widely used. This is in part because converting legacy systems to the standards will be a tough process. No firms were known to be using either FinXML or FpML to facilitate transactions as Wall Street & Technology went to press.

Some industry watchers have speculated that FpML and FinXML could sound the death knell for the aforementioned middleware vendors, since a large part of their business is based on serving as translators between firms with incompatible legacy systems and computer languages. But officials with both FpML and FinXML contend that at least for the next several years, the introduction of their protocols could mean a business boom for the middleware vendor space. Some vendor pros, such as Doug Jeffrey, New Era of Network's president of global financial services, agree. ""NEON will have to reformat the data on billions of dollars of legacy systems,"" he says.

Still, despite the congenial back-and-forth between J.P. Morgan/PWC and Integral, significant differences do exist not only technically between FpML and FinXML, but also in the goals of both parties. FpML is initially designed to handle only interest-rate derivatives and FX products, whereas FinXML supports not only these products, but also bonds, money markets, loans and deposits, and exchange traded futures and options.

FpML will likely extend its capability breadth into product lines including credit derivatives, says Jeff Saltz, head of technology for markets e-commerce at J.P. Morgan. PWC and J.P. Morgan decided to limit FpML's initial scope in part because the firms believed that protocols such as FIX already adequately handled the equity space, he says. J.P. Morgan's expertise in the derivatives arena was another factor in deciding to limit the first rollout. Both Saltz and Integral's Sandhu say that as additional products are added to the capabilities of both FinXML and FpML, they will be able to be piggybacked onto the initial versions with relative ease. Sandhu says that Integral hopes that FpML eventually extends its product availability beyond derivatives and FX so that FpML and FinXML could be equal and compatible on all fronts.

While both FpML and FinXML intend to become the standard of choice, subtler differences in their developers' goals are apparent. For example, Integral and its software company partners have in mind to augment their launch by selling FinXML-related products and services. FpML, alternatively, is seen by some as a play by J.P. Morgan to drive home a message that the firm is an industry leader in the technology and derivatives fields.

Some industry voices, however, contend that both FpML and FinXML could face uphill battles in gaining widespread acceptance. For example, FIXML, if successfully deployed, could sidestep a FinXML landmine by accommodating the very products that FinXML is looking to handle. This is in part because many of the very same firms that FinXML is targeting are already using FIX-friendly legacy systems, according to Dushyant Shahrawat, analyst at the TowerGroup. FinXML officials, however, counter that the protocol is interoperable with FIX.

2 of 2
Register for Wall Street & Technology Newsletters
Exclusive: Inside the GETCO Execution Services Trading Floor
Exclusive: Inside the GETCO Execution Services Trading Floor
Advanced Trading takes you on an exclusive tour of the New York trading floor of GETCO Execution Services, the solutions arm of GETCO.