FPL Allocations Breakfast Briefing:FPL Allocations Breakfast Briefing:Towards a new STP ModelTowards a new STP Model

Sponsored by:Sponsored by:

25 January 200525 January 2005

FIX Allocation & ConfirmationsFIX Allocation & Confirmations

Jim KayeJim Kaye

Goldman SachsGoldman Sachs

www.fixprotocol.org

FIX – A Quick BackgroundFIX – A Quick Background

• What is it?What is it?• Industry-owned messaging protocolIndustry-owned messaging protocol• 10 years old10 years old• De facto industry standard for front office communicationsDe facto industry standard for front office communications• Used by hundreds of market participantsUsed by hundreds of market participants

• How does it work?How does it work?• Defined messages using tag-value pairsDefined messages using tag-value pairs• Can be transmitted over any IP network (including the internet)Can be transmitted over any IP network (including the internet)• Uses a ‘session’ to handle authentication, message delivery and Uses a ‘session’ to handle authentication, message delivery and

recoveryrecovery• ‘‘Pessimistic’ protocol (acknowledgements required)Pessimistic’ protocol (acknowledgements required)

www.fixprotocol.org

Investment Manager

Broker Dealer

Settlement

Generate one or more orders

Fill/part fill some/all of the orders

Communicate allocation splits

Generate trade confirmations

Communicate ‘ready to book’

Affirm/reject allocations

Affirm/reject trade confirmations Settlement

SSIs

Pre-definedbooking rules

Fee/expensecalculations

Give-ups, step-outs, soft dollars

New order single

New order single

Execution reports

Execution reports

AllocationAllocation

Allocation ackAllocation ack

ConfirmationConfirmation

Confirmation ack

Confirmation ack

An Overview of FIX Allocations & ConfirmationsAn Overview of FIX Allocations & Confirmations

www.fixprotocol.org

Why Use FIX?Why Use FIX?

• Fits the process flow– Logical extension to FIX order routing flowsLogical extension to FIX order routing flows– Allocations often a front office functionAllocations often a front office function– Consistency of data from front to middle officeConsistency of data from front to middle office– Real time status availability through ‘ack’ messagesReal time status availability through ‘ack’ messages– Supports complex booking requirements arising from, e.g. self-directed Supports complex booking requirements arising from, e.g. self-directed

tradingtrading• Ease of implementation

– Opportunity to leverage existing technology investmentOpportunity to leverage existing technology investment– Open protocol – network/vendor independenceOpen protocol – network/vendor independence– Wide choice of technology suppliersWide choice of technology suppliers

• Data structures and standards– Flexible data structures for a changing environmentFlexible data structures for a changing environment– Simple mapping to ISO 15022/SWIFT delivery messagesSimple mapping to ISO 15022/SWIFT delivery messages– Timestamps and audit trailsTimestamps and audit trails

www.fixprotocol.org

Implementation – Things To Think AboutImplementation – Things To Think About

• Counterparty readiness– Can my trading counterparties support this?Can my trading counterparties support this?– If so, how?If so, how?

• Business process– Which products?Which products?– Which part(s) of the trade lifecycle?Which part(s) of the trade lifecycle?– Bilateral or central matchingBilateral or central matching– SSIs…?SSIs…?

• Technology– Existing infrastructureExisting infrastructure– NetworksNetworks– FIX engines etc.FIX engines etc.

www.fixprotocol.org

FIX engine

Case Study 1 – Fax to FIXCase Study 1 – Fax to FIX

Orders/ executions

Buy side order management system

FIX network

FIX engine

Buy side middle office system

Sell side order management system

Sell side middle office system

Fax machine

Allocations

Re-keyed…Issues:

• Not machine readable

• Prone to error

• No acknowledgements

Issues:

• Not machine readable

• Prone to error

• No acknowledgements

www.fixprotocol.org

FIX engine

Case Study 1 – Fax to FIX (ctd)Case Study 1 – Fax to FIX (ctd)

Orders/ executions

Buy side order management system

FIX network

FIX engine

Buy side middle office system

Sell side order management system

Sell side middle office systemAllocations

Issues:

• Machine readable

• Can be processed automatically

• Real time acknowledgements

Issues:

• Machine readable

• Can be processed automatically

• Real time acknowledgements

FIX engine

www.fixprotocol.org

Case Study 1 - ImplementationCase Study 1 - Implementation

• Counterparty readiness– Many sell side firms support this modelMany sell side firms support this model– In place for a number of major buy side firmsIn place for a number of major buy side firms

• Business process– Currently in use for equities/PTCurrently in use for equities/PT– Generally used in conjunction with Global OASYSGenerally used in conjunction with Global OASYS

• Technology– Many off-the-shelf OMS providers support this modelMany off-the-shelf OMS providers support this model– Some middle office system providers also support thisSome middle office system providers also support this– Most FIX networks support thisMost FIX networks support this– Zero messaging cost; low/zero implementation cost (apart from Zero messaging cost; low/zero implementation cost (apart from

testing time)testing time)

BUSINESS ENTITY IDENTIFICATIONBUSINESS ENTITY IDENTIFICATION- REFERENCE DATA AND FIX 4.4- REFERENCE DATA AND FIX 4.4

Simon Leighton-PorterSimon Leighton-Porter

VSAF.NETVSAF.NET

www.fixprotocol.org

FIX and Reference DataFIX and Reference Data

• FIX and reference data seems like an odd combinationFIX and reference data seems like an odd combination• Why the emphasis on reference data when discussing a Why the emphasis on reference data when discussing a

communications protocol?communications protocol?• Without standardisation and accuracy of reference data, any Without standardisation and accuracy of reference data, any

processing architecture is merely so much junkprocessing architecture is merely so much junk

www.fixprotocol.org

TAKING A BROADER VIEWTAKING A BROADER VIEW

• SO, WHAT ARE OUR AIMS IN DOING THIS STUFF?SO, WHAT ARE OUR AIMS IN DOING THIS STUFF?• REDUCE COSTREDUCE COST• REDUCE RISKREDUCE RISK

Client take-on

Sales andtrading

Trade-date processing

Settlement

FIX

BUSINESS ENTITY IDENTIFIERS

www.fixprotocol.org

SQUARING THE CIRCLESQUARING THE CIRCLE

• COMPONENTS OF A SUCCESSFUL, FIX-BASED POST-EXECUTION COMPONENTS OF A SUCCESSFUL, FIX-BASED POST-EXECUTION MESSAGING ARCHITECTUREMESSAGING ARCHITECTURE– Hardware and applicationsHardware and applications– ConnectivityConnectivity– Interoperability and flexibility within a framework of well-Interoperability and flexibility within a framework of well-

defined standardsdefined standards– MatchingMatching– Business Process Management (BPM)Business Process Management (BPM)

– CONTENT CONTENT - - turn all the talk about data standardisation turn all the talk about data standardisation into reality by providing an identifier that supports the entire into reality by providing an identifier that supports the entire business process and is flexible enough to be used in any business process and is flexible enough to be used in any processing modelprocessing model

• So, what does one of those look like?So, what does one of those look like?

www.fixprotocol.org

IBEI DefinedIBEI Defined

• International Business Entity Identifier: ISO 16372International Business Entity Identifier: ISO 16372

““IBEI is a global scheme for uniquely identifying business entities playing IBEI is a global scheme for uniquely identifying business entities playing a role in the lifecycle of, and events related to, a financial instrument”a role in the lifecycle of, and events related to, a financial instrument”

““A business entity is an entity that is either A business entity is an entity that is either regulatedregulated or on which or on which due due diligence is necessarydiligence is necessary under any jurisdiction” under any jurisdiction”

ISO TC68 SC4 WG8 Feb 2004ISO TC68 SC4 WG8 Feb 2004

www.fixprotocol.org

IBEI ModelIBEI Model• Central utilityCentral utility• Concept of sponsorshipConcept of sponsorship• Core information will be free or available at very low cost Core information will be free or available at very low cost • Data quality maintained byData quality maintained by

– Multi-source informationMulti-source information– ““Triggers”Triggers”– TwilightingTwilighting– Sponsor updatesSponsor updates– Information from IBEI entities and IBEI usersInformation from IBEI entities and IBEI users

• NONO LICENCE FEES LICENCE FEES• Value-added information will be available at additional costValue-added information will be available at additional cost

– Cross-references to other commercial data sourcesCross-references to other commercial data sources• Scope for future developmentsScope for future developments

– Settlement instructionsSettlement instructions– Payment instructionsPayment instructions– Compliance-related informationCompliance-related information

www.fixprotocol.org

Role of the SponsorRole of the Sponsor

• Centralised, using sponsorsCentralised, using sponsors

RegistrationAuthority

Applicant

Sponsor

IBEI REQUESTIBEI ALLOCATION

www.fixprotocol.org

IBIE Repository Data ContentIBIE Repository Data Content

www.fixprotocol.org

IBEI VALUE-ADDSIBEI VALUE-ADDS

• REDUCE COSTREDUCE COST• REDUCE RISKREDUCE RISK• SUPPORTS USE OF FIX POST-EXECUTIONSUPPORTS USE OF FIX POST-EXECUTION

Client take-on

Sales andtrading

Trade-date processing

Settlement

FIX

BUSINESS ENTITY IDENTIFIERS

www.fixprotocol.org

IBEI SUPPORTS SSI FRESHIBEI SUPPORTS SSI FRESH

• REDUCED COST AND RISK OF CLIENT TAKE-ON (Common to all REDUCED COST AND RISK OF CLIENT TAKE-ON (Common to all processing models)processing models)

• AGREED RANGE OF IDENTIFIERS FOR ENTITIESAGREED RANGE OF IDENTIFIERS FOR ENTITIES• IBEI CAN BE USED TO IDENTIFY LEGAL ENTITY, ALLOCATED IBEI CAN BE USED TO IDENTIFY LEGAL ENTITY, ALLOCATED

ACCOUNT ETCACCOUNT ETC• POTENTIAL USE AS SSI FRESH DATABASE TO SUPPORT MODEL 1POTENTIAL USE AS SSI FRESH DATABASE TO SUPPORT MODEL 1

Buyside Sellside

Global Custodian

Local agent (I)CSD Local agent

Allocation enriched with SSIs and, ideally, net money

Confirmation (1 per account) enriched with SSIs x2 and net money

Affirmation

MATCH

MATCH?

SSI Database

SSI updates

SSIsSSIs

Alvin MullanAlvin Mullan

UBS Investment BankUBS Investment Bank

www.fixprotocol.org

IntroductionIntroduction

• SSI data within the FIX Allocation & Confirmation message flowSSI data within the FIX Allocation & Confirmation message flow

• Electronic Capture of Standing Settlement Instructions (SSI)Electronic Capture of Standing Settlement Instructions (SSI)

• Scottish Statutory Instrument (SSI) 2002 No. 39 Scottish Statutory Instrument (SSI) 2002 No. 39 The Sheep and Goats The Sheep and Goats Identification (Scotland) Amendment Regulations 2002Identification (Scotland) Amendment Regulations 2002

www.fixprotocol.org

Model 1 – Buyside involved in SSIsModel 1 – Buyside involved in SSIs

Buyside Sellside

Global Custodian

Local agent (I)CSD Local agent

Allocation + SSIs (inc PSET) & net money (ideally)

Confirmation (1 per account) + SSIs x2 and net money

Affirmation

MATCH

MATCH?

SSI updates

Notes:

• Needs FIX 4.4 for Allocation

•And FIX 4.4 or SWIFT MT515 for Confirmation

Notes:

• Needs FIX 4.4 for Allocation

•And FIX 4.4 or SWIFT MT515 for Confirmation

www.fixprotocol.org

FIX 4.4 SSIs in the Allocation messageLevel 0 Level 1 Level 2

Message Body

Contains 1 Message Definition Defines type and purpose of message and contains

message identifiers Contains Many

Orders

Optional repeating group identifying the orders being booked and/or allocated together with their price and quantity being booked/allocated. This is mandatory in FIX but is currently should have at least one occurrence on a message to UBS.

Contains 1

Booking Unit

Defines the booking unit being booked and/or allocated (e.g. security, side, price, trade date) TransactTime is included here although viewed as being part of the Message Definition section.

Contains 0 or many

Allocation Details

Contains 1 Commission Details

Fields defining commissions (either a rate or an absolute value)

Contains 0 or one Trade Net Monies Optional fields defining net monies and settlement

amount

Contains 0 or many Fees Optional repeating group defining fee and expense

details

Contains 0 or many

Settlement Instructions

Optional repeating group defining buy and/or sell side settlement instructions. See section below.

www.fixprotocol.org

FIX 4.4 SSIs in the Confirmation message

Level 0 Level 1

Message Body Contains1 Message Definition Defines type and purpose of message and contains message

identifiers Contains1 Firm Identification &

PSET

Contains1 Instruction Identification

Contains1 Instrument Detail Contains1 Trade Identification Text is in this group although it would be better placed in

Message Body Contains1 Trade Net Monies Contains 0 or many

Settlement Instructions

Repeating group defining buy and/or sell side settlement instructions

Contains1 Commission Details Fields defining commissions (either a rate or an absolute value) Contains 0 or many Fees Optional repeating group defining fee and expense details

www.fixprotocol.org

SSI baggage in FIXISO 15022 Def

SettlPartyIDRole <784>

SettlPartyIDSource <783>

SubIDType <786>

PSET 10 = Settlement Location B = BIC

DEAG/REAG 30 = Agent or 4 = Clearing Firm (But only 1 of)

B = BIC 10 = Securities Account Number 22 = Securities Account Name 17 = CSD participant/member code

DECU/RECU 28 = Custodian or 31 = Sub-Custodian (But only 1 of)

B = BIC 10 = Securities Account Number 22 = Securities Account Name 11 = Registration number 14 = Registration name 17 = CSD participant/member code

BUYR/SELL 27 = Buyer/Seller

www.fixprotocol.org

Model 2 – Buyside opt outModel 2 – Buyside opt out

Buyside Sellside

Global Custodian

Local agent (I)CSD Local agent

Allocation + Custodian & net money (ideally)

Confirmation (1 per account) + SSIs x2 and net money

Affirmation – needed?

MATCH

SSI updates

Notes:

• Can use FIX 4.2 for Allocation

•And SWIFT MT515 for Confirmation

•Or FIX 4.4 for both

Notes:

• Can use FIX 4.2 for Allocation

•And SWIFT MT515 for Confirmation

•Or FIX 4.4 for both

www.fixprotocol.org

Model 3 – Centralised SSIModel 3 – Centralised SSI

Buyside Sellside

Global Custodian

Local agent (I)CSD Local agent

SSI updates

www.fixprotocol.org

SSIs - building solutionsSSIs - building solutions

• STPLiteSTPLite

• SSI FreshSSI Fresh

• Solutions Providers – many “harolds”Solutions Providers – many “harolds”

• Generally accept:Generally accept:– custodian holds and maintains SSI data custodian holds and maintains SSI data – data automatically issued to “local” or “central” databasedata automatically issued to “local” or “central” database– adhoc query and responseadhoc query and response– real time access to custodian on a trade by trade basis NOT real time access to custodian on a trade by trade basis NOT

necessarynecessary

www.fixprotocol.org

SSI - dataSSI - data

• Query dataQuery data– NumberNumber– Country or Place Fund Manager IDCountry or Place Fund Manager ID– Custody Account of SettlementCustody Account of Settlement– Side (Buy/Sell)Side (Buy/Sell)– Product, Security Identifier and TypeProduct, Security Identifier and Type– Effective date/timeEffective date/time

• Response or Pushed dataResponse or Pushed data– Cross-references to query (forming the “key” fields)Cross-references to query (forming the “key” fields)– SSI Detail:SSI Detail:

• PSETPSET• Agent and Agent Account at place of settlementAgent and Agent Account at place of settlement• CustodianCustodian

www.fixprotocol.org

SSIs – need for data standardSSIs – need for data standard

• Delivery mechanism may varyDelivery mechanism may vary– FIX/FIXMLFIX/FIXML– SWIFTSWIFT– FileFile

• Need to ensure we have an SSI data standard – clones like “Dolly”Need to ensure we have an SSI data standard – clones like “Dolly”

• SSIs for cash settlementSSIs for cash settlement

• Nothing to do with sheep and goat identification and Scottish Nothing to do with sheep and goat identification and Scottish Statutory Instrument regulationsStatutory Instrument regulations

Any Questions?Any Questions?

FPL would like to thank FPL would like to thank the sponsors of this event:the sponsors of this event:

25 January 200525 January 2005