No Easy FIX: Brokers Eye Outsourcing FIX Connections (fix protocol)

FIX costs have long been a thorn in the side of more than a few brokers. While many still insist on managing their FIX connectivity internally, others have chosen to outsource this service to third-party providers. The question remains: Is the benefit worth the internal staffing and budgeting, or is it time to hand off this service to the vendor community? By Anthony Malakian

Many firms like to talk about their operational resilience and their ability to weather financial crises. Then there’s Dominick & Dominick, founded in 1870, five years after the Civil War’s bloody conclusion. During its 140-year history, the New York-based financial services firm has only known two owners. It has survived market crashes, Black Tuesday, the Great Depression, and numerous recessions and bubble bursts. The firm, which serves as a wealth manager and brokerage, prides itself on its personalized customer service and the closeness of its client relationships. That has meant responding to new IT challenges in-house to guarantee that level of personalized service.

But when it came to managing the firm’s FIX connectivity, the internal effort proved too daunting and expensive, and undermined the firm’s client focus. Dominick & Dominick doesn’t have its own FIX team. Since 2005, that responsibility has fallen to Michael Abbruzzese and an IT employee here and there, who dealt with the different FIX providers. Abbruzzese, Dominick & Dominick’s managing director and head of block trading, says he’s no expert when it comes to FIX connectivity. “We kind of muddled through the process the best we could, which took time away from our day jobs,” he says.

 

“The biggest benefit for us or for anyone else is the portability of the FIX connections. You’re not necessarily married to your OMS anymore. …ConnEx gives us the flexibility to take all of our FIX connections and just repoint them to the new OMS, if we were to make a switch.” —Michael Abbruzzese, Dominick & Dominick

 

Still, Abbruzzese never gave much thought to the idea of outsourcing the firm’s FIX connectivity until Dominick & Dominick went looking for a new order management system (OMS). When speaking with representatives from ConvergEx, he mentioned how much of a headache FIX-related issues were to the firm. He was directed to George Rosenberger, who heads ConvergEx’s ConnEx unit, which specializes in FIX outsourced solutions.

Ups and Downs 

The Financial Information eXchange (FIX) messaging protocol was created in 1992 as a way to communicate trade information among market participants in a standardized way. And in the years since, the growth of the FIX protocol has mirrored the meteoric rise of electronic trading. But as FIX’s role in the markets expanded, so too did the costs and resources required to manage the connections.

Prior to the financial crisis of 2008, most brokerages chose to manage FIX connectivity in-house. They felt it provided them with improved customer service, rapid connection times to add new lines, and faster reaction time to respond to outages.

But since 2008, brokers’ volumes have fallen—volumes on the New York Stock Exchange, which correlate well with broker-dealer volumes, have steadily fallen year-over-year since 2008, from a high of 2.6 billion average daily shares to 1.1 billion in 2012, a decrease of 57 percent (see chart). This trend is not expected to turn around in 2013. Therefore, firms have begun to examine the costs of keeping an entire team onboard dedicated to FIX.

With this in mind, early last year ConvergEx launched its ConnEx suite of FIX infrastructure solutions. After speaking with ConvergEx’s Rosenberger, Abbruzzese says it made sense to switch to ConnEx because it offered specific FIX expertise and the vendor understood the tagging, which typically presents significant setup challenges, according to Abbruzzese.

“For us, that was a process that we had to learn as we were going because we weren’t necessarily sure what the best way to do it was,” he says. “Being with ConnEx takes all that off our plate. We’ve had new connections with them that went live overnight and we’ve never had an issue.”

 

The full article is available at http://www.waterstechnology.com/waters/feature/2239622/no-easy-fix-brokers-eye-outsourcing-fix-connections