SWIFT Sustains Its Assault on the Front Office

Following the rapprochement with the FIX Protocol Limited in July this year, SWIFT has moved quickly to consolidate its bridgehead in the front office. Today, it announced that a FIX hub messaging solution will be piloted by ten broker dealers

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Following the rapprochement with the FIX Protocol Limited in July this year, SWIFT has moved quickly to consolidate its bridgehead in the front office. Today, it announced that a FIX hub messaging solution will be piloted by ten broker-dealers and ten fund managers in the first quarter of 2002. The FIX hub solution the Brussels-based messaging utility is making available on its SWIFTNet Internet protocol network will enable users of different versions of FIX and SWIFT to understand each other. However, the hub will not allow SWIFT messages to be converted into FIX messages, or vice-versa. Fully seamless communications between fund managers, broker-dealers, custodians and payment and settlement utilities awaits the convergence of the entire securities industry on a single messaging standard, written in XML ad expressed to the ISO 15022 standard. But the hub will not inhibit early adoption of the ISO 15022 XML standard, because users will be able to inter-operate with users of legacy versions of FIX and SWIFT message standards. It will also be linked in due course to the virtual matching utilities, GSTP/axion4 and Omgeo, offering the prospect of genuine straight-through processing from the pre-trade space of the fund manager, via the trade space of the broker-dealers and exchanges, to the clearing and settlement space of the CCPs, custodians and CSDs.

The benefits of the hub to SWIFT are obvious. It hopes to capture FIX-based securities messaging traffic for SWIFTNet from alternative networks and existing hubs, such as Autex. Mired by history in the payments and securities clearing and settlement space, SWIFT is now making a determined effort to move up the securities transaction lifecycle into the pre-trade and trade space where FIX has long dominated messaging. This matters to future revenue at SWIFT, because the rise of netting through CCPs is threatening to reduce the volume of transactions proceeding to settlement. “For the first time, we are able to support both the front and back office of securities firms with standardised messaging,” says Simon Cleary, head of securities marketing at SWIFT in London. “By extending our portfolio to cover the entire securities transaction, we are looking to significantly upgrade our presence in the securities markets. In particular, we are accessing fund broker-dealers, fund managers and exchanges in a really focused way for the first time. This opens SWIFT up to the full theatre of securities players. That is the logic behind the SWIFTNet FIX hub solution.”

But what is in the hub for FIX users? To some extent this question is irrelevant, since the agreement between SWIFT and FIX in July this year means that the distinction between the front and back office messaging utilities no longer applies. However, it remains a live one as long as fund managers and broker-dealers continue to use FIX message types during the transition to a single standard written to the ISO 15022 standard and expressed in XML. And in that quarter, the hub has the potential to solve a massive logistical problem for FIX users: the fact they have to establish a separate point of contact with every counter-party. Indeed, the hub offers a single point of access to the securities transaction chain at any point between pre-trade and settlement. Secondly, the pricing strategy at SWIFT – essentially, discounts for volume – means FIX users ought to be able to lower their transaction costs overall by channelling more business through SWIFTNet.

Capturing that traffic matters to SWIFT because there is no guarantee, even in a world where everybody is using a single messaging standard, that they will choose SWIFTNet to transport messages. The creation of the hub on SWIFTNet is also an admission that a securities industry in which information is exchanged solely in messages written to the ISO 15022 standard and expressed in XML is years away. “We recognise it is going to take some time for the industry to evolve to the ISO 15022 XML standard, because both SWIFT and FIX users have spent a lot of money on developing systems to suit the standards they are using today,” says Cleary. “Just because the standard is out there – and the first outputs are due in the second half of next year – it does not mean that everybody is suddenly gong to migrate to it.” In short, SWIFT sees the hub as a way of getting into the pre-trade and trade end of the transaction value chain ahead of the convergence between SWIFT and FIX on a single ISO 15022 XML standard.

To deliver the SWIFTNet FIX hub solution, SWIFT has joined forces with Financial Fusion – the Sybase-owned software house which rivals Javelin as the market-leading provider of FIX engines to fund managers and broker-dealers – to provide a ready-made routing and functionality application. Happily, Financial Fusion were already in talks with Global Crossing, the telecommunications company to which SWIFT out-sourced network services earlier this year. As a result, the hub software will be easy to embed in SWIFTNet, which is operated by Global Crossing. “It was a happy coincidence,” says Cleary. “Financial Fusion signed a deal with Global Crossing in November last year to provide a hub service, round about the time we identified a need to provide a hub service as well, and just a few months before we signed our network agreement with Global Crossing in February this year.” Coincidence or not, the hub takes SWIFT deeper into the front office than ever before. In the New Year, observers will be keen to see the names of the firms which have agreed to pilot it.

For more, see Global Custodian magazine, Spring 2001 issue, pages 26 to 27; Summer IT or Pre-SIBOS issue, page 20; and forthcoming Winter 2001 issue.