New FIX Order Routing Network Targets Derivatives Exchanges

Riding the wave of derivatives exchanges that are soon to adopt the FIX protocol, two U.K.-based vendors are planning to build an order routing network that will hit 14 derivatives exchanges with a single FIX-connection and reduce the cost of access.

EasyScreen PLC--a major supplier of connectivity to derivatives exchanges--and B2Bits--a developer of FIX engines--struck an agreement to operate a high-volume FIX message-hub that will send messages to 14 derivatives exchanges. Testing with major sell-side clients is expected to begin in March, according to Robert Woodmansey, CEO of B2Bits, who would not disclose which derivatives exchanges would participate. Once buy and sell side firms are connected to the listed-derivatives exchanges, they will work on connectivity to electronic communications networks (ECNs) to add the cash-equity markets next.

Today, EasyScreen provides connectivity from the sell-side into the world's four largest derivatives exchanges: London International Financial Futures and Options Exchange (LIFFE), Euronext, the Chicago Mercantile Exchange and the Chicago Board Of Trade.

EasyScreen's core business is writing front-ends and providing connectivity into those exchanges. "Effectively we expose a FIX interface to all those native exchange systems," explains Jim Kleinops, head of EasyScreen's U.S. operations based in Chicago. "We are going to simplify that (by) expanding into the message space, which is probably dominated by Thomson Autex and TradeRoute on the equity side," notes Kleinops.

But the venture could bump up against competitors. Other established players in the FIX order-routing and application space include: Belzberg Technologies, MacGregor, NYFIX, SunGard Transaction Network and SWIFTNet. One of the biggest competitors will be NYFIX. According to a NYFIX spokesman, the vendor, through its London-based subsidiary, NYFIX Overseas, routes messages to derivatives exchanges worldwide, including: Lifffe, Matif and Eurex in Europe; all the major futures exchanges in Asia Pacific and the CME, CBOT, Nasdaq-AMEX and the Pacific Exchange in North America. In addition, "NYFIX supplies translation and conversion of FIX messages into proprietary exchanges languages through the use of APIs," the spokesman says.

What could differentiate the new venture from the herd of FIX-messaging competitors is a new pricing model. EasyScreen and B2Bits say they will charge a flat fee based on the number of destinations and bandwidth requirements. Many of the FIX network providers charge on a per-message basis or a percentage of the nominal value of the transaction, contends Woodmansey.

"The cost of electronic access is still too high," adds Kleinops, who adds that it's "ripe for some commodization, for some restructuring. There are certainly some scale benefits for offering this on a fixed-fee basis."

However, according to the NYFIX spokesman, "pricing is based on the number of destinations a user chooses to route to, not per message."Meanwhile, the timing of the FIX network appears to be right on schedule since many futures and options exchanges are throwing their support behind the FIX protocol. "All your major exchanges are either offering or moving to offering FIX-based APIs," says Kleinops, who notes that the CME is putting all its efforts into I-Link, a FIX 4.2 API-gateway into the CME.

One goal driving exchanges to embrace FIX is to move away from the silo effect that has proliferated on the derivatives side, with each exchange requiring end users to buy another front-end or server box, says Kleinops.

The idea is "to establish a single connection that can reach all global derivatives exchanges" via FIX messages, says Woodmansey. Currently, he claims, this is not possible because firms make modifications to the FIX protocol, so there are many dialects within a single version, "which means if you want to get to 14 exchanges, you have to implement many different versions of the protocol," he says. "We've consolidated that so you only have to implement one. Furthermore, we're able to connect people through a FIX connection to exchanges which don't support the FIX protocol by doing data center translations from FIX to their proprietary protocol or to the exchange API and back again to FIX," he explains. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio