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Fixed Income Trading: New venues

A simple question came up recently in a conversation – how many new Fixed Income trading venues are there?  I could not think of anywhere th...

Thursday, 19 February 2015

What’s a FIX network? Part one...

When the world of FIX was young and there was a great deal of perceived execution risk in building out connectivity many firms turned to vendors to provide connectivity networks.  [See also What’s a FIX network? Part two...] A partial list of these in the real-money equity space includes most of the big names in financial technology such as:
[Note: this post is only looking at real-money, not at the more esoteric world of low-latency and co-location]
These systems can also generally manage connections to trade exchange traded options and futures.  The business model for these networks is simple – the buy-side pays indirectly, the actual bill from the vendor is passed to the brokers which are connected to the buy-side.  Now, think through this model.  The buy-side is not really paying for this connection.  The clients of the buy-side are paying since the execution commission generated by trading over this connection has to cover the cost.

In summary: a diverse group of offerings that cater well to the equity market.

What about Fixed Income?
Tradeweb
Bloomberg
MTS Markets: BondVision
MarketAxess
These firms have a different model – they do not provide a true buy-side-to-sell-side connection. Instead the buy-side and the sell-side connect via FIX but to a central application that acts as an execution venue. These vendors have a mix of business models – in some cases there is an execution commission charged to the sell-side which is reflected in the prices offered to the buy-side.  In other cases there is an access fee charged to the buy-side.  In all cases the sell-side pays to use the system.

For FX the picture is different – the majority of products abstract away FIX and provide a one to one model of a single API in Java, C++ or C# to which a buy-side can build.  In these cases the buy-side pays to use the system but the entire fee model is not entirely clear.

Market Factory
Eurobase
Redline Trading
 
What about other asset classes?  CDS? Commodities? Interest Rate Swaps?  Parts of this have been covered here.

So there is no true unified multi-asset capable electronic trading solution.  Only parts of the puzzle that need to be integrated.

In a further post I'll revisit the equity FIX world and look at the low-latency/co-location world.

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