FIX has set its sights on expanding its front-office messaging standards to the back-office in a direct challenge to SWIFT as it targets settlement workflows between custodians and their clients.
Known as the standard electronic protocol for pre-trade communications and trade execution, FIX has been used throughout the world by the buy- and sell-side for front-office functions over the past three decades.
Conversely, SWIFT’s settlement and reconciliation messaging solution has been the standard for automated communications between asset managers and brokers, global custodians and local agents, and between settlement participants and multiple market infrastructures.
But FIX is now looking at expanding its scope to cover more post-trade functions following successful asset class diversion in recent years and part of this includes settlement workflows.
“Many custodians today are still instructed by file and SWIFT isn’t a 100% dominating protocol in this space,” said David Pearson, co-chair of FIX’s Global Post-Trade Working Group working group and head of post-trade at Fidessa. “It’s about evolving, people seeing they need to use the skills and resources they’ve got.
“If it displaces SWIFT in some areas then that is what the industry wants. We’re not here to force adoption, just to show it’s possible. People want to make it work so they produce a standard and a guideline, and when adopted that fixes [the] problem.”
In response, SWIFT told Global Custodian it is “aware of efforts” from FIX to extend into the post-trade space, but highlighted “compelling reasons” to stick to existing ISO standards.
“ISO 15022 is also compatible at the data level with ISO 20022, which is emerging strongly as the settlement standard for securities market infrastructures, most notably TARGET2 for Securities,” said Stephen Lindsay, head of standards at SWIFT.
“ISO 20022 is also gaining ground in related areas of securities business, from corporate actions to regulatory reporting, providing a common and consistent data model for securities players seeking to re-use infrastructure and investment and analyse data across operational silos.”
In the meantime, he added, it is rapidly replacing proprietary formats for payments, international and domestic, high and low-value. “By sticking with ISO standards, securities players will be able to use a single standard and technology for securities and cash, providing further scope for platform consolidation. Moreover, ISO 20022 is designed to evolve with technology, and is already being deployed to define the data exchanged in APIs, simplifying integration with downstream processes.”
The broadening of FIX’s coverage will see custodians begin working with FIX, and Pearson said there are already “big names” in the discussions.
“Some of our parties around the table have brought in their main custodians, who haven’t been part of the FIX story so far and they are adding their value into our understanding,” he added. “One of the most revealing and interesting aspects of this from my perspective is the extraordinary level of collaboration to achieve the desirable outcome.
“It’s been a natural conversation for firms to start to look across the workflow to see where else the knowledge base and resources can be used in other parts of the industry and other parts of the workflow.”
Additionally, FIX has continued its growth by creating a number of new working groups aimed at securities services firms. These include repo and securities lending groups, with the latter also covering the incoming Securities Financing Transactions Regulation (SFTR).