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Friday, 20 February 2015

FIX Testing and Certification: Implementation

Who performs FIX testing and certification? And who pays?

The firms that perform FIX testing can be broadly slotted into one of the following six categories:
  1. Exchanges/ATSs that offer a FIX interface to their clients
  2. Buy-sides connecting by FIX to sell-sides
  3. Sell-sides connecting by FIX to buy-sides and to exchanges
  4. Industry utilities such FINRA Trace Spec for Corporates and Agencies
  5. Interdealer brokers
  6. Vendors such as Tradeweb, MarketAxess, Thinkfolio, ThomsonReuters
There is one other group that is incredibly important but often overlooked: development groups within firms that work on systems that are downstream from external FIX connectivity. This group will be covered in a further post.  This post will only look at the external FIX testing and certification performed by the first six groups.

I always look at a FIX connection by asking a series of questions:
  1. Who directly pays for the physical connectivity?
  2. Does one side pay the other to conduct the testing and certification?
  3. Does either party view the connection as a profit centre?
  4. Does either party view the connection as a cost centre?
  5. Must either party implement the connection?
 
Let's explain this in more detail with a few examples:
 
Broker/dealer wants to trade equities on an exchange and implement a FIX connection
Who directly pays for the physical connectivity? Broker/dealer
Does one side pay the other? Broker/dealer pays Exchange
Does either party view the connection as a profit centre? Exchange
Does either party view the connection as a cost centre? Broker/dealer
Must either party implement the connection? Broker/dealer
 
Broker/dealer wants to receive order flow from a buy-side by a FIX connection
Who directly pays for the physical connectivity? Broker/dealer
Does one side pay the other? No
Does either party view the connection as a profit centre? Broker/dealer
Does either party view the connection as a cost centre? Broker/dealer
Must either party implement the connection? Broker/dealer
 
Broker/dealer wants to receive order flow from clients of vendor of buy-side OMS  
Who directly pays for the physical connectivity? Broker/dealer
Does one side pay the other? Broker/dealer pays vendor
Does either party view the connection as a profit centre? Broker/dealer
Does either party view the connection as a cost centre? Broker/dealer
Must either party implement the connection? Broker/dealer
 
I won't go on to list every different option and the roles played by the participants but I will offer the following summary: generally speaking, it's the broker/dealer that pays for everything, the broker/dealer that is looking to generate profit from the connection, the broker/dealer that manages the ongoing cost of the connection and the broker/dealer that is in a hurry to get the connection.
 
This can lead the reader to consider that since the onus to deliver is on the broker/dealer then this is where we should see the majority of effort in terms of time and money for  FIX testing and certification.
 
So, with that in mind what levels of automation do we generally see for FIX testing?
 
Exchanges/ATSs
Exchanges perform such an important role within the market that one would expect them to take testing very seriously.  Some exchanges do and have implemented vendor supplied testing technology such as:
  1. CBOE/Lasalletech
  2. ASX/VeriFIX
  3. Lima/VeriFIX
  4. IEX/VeriFIX
  5. BondDesk/FIXFlyer
  6. Aquis Exchange/FIXSpec 
I would note that the many exchanges that have publicly announced deals for vendor platforms are in frontier markets.  Whether this is because established markets don't allow press releases but are indeed buying these solutions or because frontier markets are more likely to buy software to compensate for a lack of experienced available testing personnel is not clear.

Buy-sides
I am not aware of any open source information available whereby a vendor has stated that a buy-side has bought their system.  Own information is that there are a few (measured in handfuls) globally.

Sell-sides
This market sector has clearly been a sweet-spot for the adoption of FIX Testing and Certification software  
  1. Newedge/Lasalletech
  2. Nomura/Esprow
  3. Interacciones Casa de Bolsa/FIXFlyer   

Industry utilities
I am not aware of any open source information available whereby a vendor has stated that an industry utility has bought their system.
 
Interdealer brokers
I am not aware of any open source information available whereby a vendor has stated that an IDB has bought their system.
 

I do have private information about buy-sides, interdealer brokers and industry utilities that have purchased FIX Testing and Certification software but in keeping with the no-naming and shaming policy of this blog I will not mention names.  A quick look around linkedin.com will assist in any research that a reader may care to conduct...
 
Beyond these vendor options there are a few further options for FIX Testing and Certification:
  1. Generic testing software such as HP Unified Functional Testing (the old QTP).
  2. Design the software to work with standard tooling such as Junit, guice and/or cucumber.
  3. Inhouse built software to test FIX
  4. Old fashioned spreadsheets, log files, screenshots
The challenge for any organisation that looks at FIX testing and certification is that before starting it seems to fit into the category of "how hard can it be?".  Once an organisation has battled through the issues the first, second, third, Nth time it's then clear that it can be very hard, but typically by that time the project funding for a system has been spent on staff or consultants performing manual testing.

A further challenge is that most folks buying these systems are doing so for the first time and so are not aware of the sweet spot for the products and the challenges for delivery.

In conclusion: Conduct a thorough search and selection for a FIX Testing and Certification platform.  Implement it, manage the vendor relationship and don't start to try to save money by doing it manually.

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