NYFIX’s New IOI Product Will Lower Costs for Users

There's a new player in the indications of interest (IOI) messaging space. In an effort to lower the cost structure of IOI messaging, Stamford, Conn.-based NYFIX (booth 1856) has begun connecting the buy and sell sides to its service. NYFIX began passing IOI messages along its network in November 2005 by leveraging its existing infrastructure between the buy side and sell side.

Users will pay a flat monthly fee based on size to pass IOIs back and forth, a structure that NYFIX reports lowers the cost of exchanging IOIs considerably. "The current model is very expensive for brokers," contends Andy Wilson, global head of the FIX network division at NYFIX. "We're anywhere from a half to a third of the cost."

September also will see value-added features integrated into the product, says Wilson. Filtering will be a key benefit for buy-side users, as they currently are overloaded with information, he notes. According to a survey of the top 50 U.K. fund managers by APR Smartlogik, only 32 percent of the information buy-side managers receive from sell-side counterparties is relevant to their immediate needs. "The information is overwhelming for the buy side," asserts Wilson, who stresses the need "to validate and filter data for the buy side so they only see what's relevant to them."

Pzena Investment Management, having already integrated NYFIX's FIX routing tool into its INDATA order management and portfolio accounting systems, went live with the IOI solution in November 2005. "We've already had a couple of situations where it has turned out to be a useful tool," says Keith Komar, principal and director of operations and technology at Pzena, noting that the filtering capability "really works toward giving us the information on the securities that we are interested in."

Trimming the number of messages sent to the buy side holds advantages for both sides of the trade, NYFIX's Wilson points out. "By creating this filtering mechanism, we want to bring out all of the noise," he says. "If you only get a hundred messages instead of a thousand, you may wind up trading twice as much."

Further, NYFIX hopes to end the long-standing unregulated practice of broker-dealers inflating the trading activity they report to the buy side by providing the means to validate that information against exchange reports. Buy-side users of the NYFIX IOI solution will be able to compare the trade reporting data from both entities, ensuring the integrity of those numbers. "This will give the buy side a much clearer picture of who is doing what, and it will also keep the sell side honest," claims Wilson.

Morgan Stanley is one of the first sell-side firms to start passing IOIs along the NYFIX pipe in an effort to keep clients happy. "We want to service our customers how they want to be serviced," says Scott Lenowitz, managing director of technology for institutional equity at Morgan Stanley.

Lenowitz says he expects a cost savings, but it will depend on the extent to which the buy side warms to the NYFIX solution. "It's client driven," he explains. "If NYFIX develops a product that has better functionality, better economics, ... then I think that they will win," he says.