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Financial Information Exchange Protocol

Published: Oct 6, 2020

Table of Content

  1. Financial Information Exchange
  2. Why is the FIX Protocol needed?
  3. The current day usage of FIX Protocol
  4. What is the future of FIX?
  5. Final Words

The finance business is grappling with digital data either in a structured format or unstructured ones. Data transmission is a norm for every business to communicate and transmit information to relevant sources. For businesses to make decisions, it is necessary to have data in hand and as we know financial data is secretive in nature. To withstand the confidentiality of data, there is a standardized method introduced for electronic communication regarding financial activities.

FIX (Financial Information Exchange) Protocol is the public standard method of digital communications regarding financial activities. It is a standardized general practice by which digital financial transactions can be performed. FIX protocol standards are maintained by FIX Trading Community. It is a non-profit body created and run collectively by global financial institutions. Now let us start with understanding why it was important for the business to bring standard practice in the regime for financial software development.

Why is the FIX Protocol needed?

Before FIX protocol was introduced, financial activities like equity trading were done verbally using telephonic communication. Since the industry was restricted to one way of financial communication so there arose a need for a secure method of data transmission. Before FIX, the activities were not real-time, secure, and reliable. In the case of an equality broker that handles multiple traders, in that situation, it is hard to parallelly communicate with multiple traders. There were possibilities that communication was misunderstood or one trader call was filled by another trader.

The Evolution

Robert “Bob” Lamoureux and Chris Morstatt introduced FIX for the first time in the year 1992 and after that in 1998 FIX Protocol Ltd was created to maintain and continue the enhancement of FIX protocol by financial institutions. FIX Protocol Ltd is also focused on encouraging global financial institutions to adopt this protocol and help them in their regular implementations. FIX Protocol Ltd realized that their efforts no longer fit their brand name so that in August 2013 the organization was branded with FIX Trading Community. Re-branding helped them to attract a large community and evolve rapidly.

The current day usage of FIX Protocol

The sole agenda of prefacing FIX in the financial sector was to make equity trading simpler by fintech software development but not just limit it to one sector only. It can also be used for foreign money exchange, mutual funds, investment banking, block trades and any financial activity including buying or selling.

Standards

The FIX protocol consists of the following standards:

  1. Application: It defines the base-level standards for automation and electronic financial transactions and it is categorized by versions. It is standard for messages that transmit between two counterparties. Those versions are as follow:
    • FIX Latest: Till this writing, it is the latest version of FIX message standards. It supports extension packs that help to add new functionality to existing standards. And there are around 200 extension packs available.
    • Version 5.0 Service Pack 2: It is a version from which session-level protocol is separated. It was released in 2009.
    • Version 4.4: It is the most adopted and used version for financial transactions.
    • Version 4.2: It is mainly used for deals in equity and foreign money exchange.
    • FIXatdl: Defined in XML format, the FIX Algorithmic Trading Definition Language is used for generalizing UI for end-users like traders.
    • MMT: The MMT (Market Model Typology) is developing standards and focuses on activities that are required after deals. Financial institutes with this standard trying to create a solution that manages data from different sources easily.
    • User-Defined Fields: This standard suggests that there are fields that open and can be customized by vendors and it is implemented and operated only between participating vendors for customization.
  2. Encoding: Encoding standards are the way how transaction messages are written. It depends and evolves based on technology standards. some of them are as follows:
    • Tag Value: In this encoding message can consist of various fields and values. Fields are integer numbers and each field number has its meaning. And with an equal sign value for those fields can be mentioned. And multiple combinations of fields and values can be separated using <SOH>(hexadecimal value 0x01).
    • FIXML: It is an XML based way to define the financial messages. It is mainly used with post-deal data reporting. It is still in the developing phase.
    • SBE: Simple Binary Encoding (SBE) is standard designed for low latency messages and it is widely used for market data transmissions.
    • GPB: Google Protocol Buffers (GPB) encoding is standards of encoding to achieve high performance and is mainly used for internal transaction communication in financial institutions.
    • JSON: Yet in the developing phase, JavaScript Object Notation (JSON) is a standard method that focuses on human understood encoding of transaction messages. It is intended to be used with web technologies like web applications, web services, APIs, etc. It is not optimized for low latency transactions.
    • ASN.1: Abstract Syntax Notation (ASN.1), It is an ISO standard for encoding and this is added to achieve high-performance message transmission.
    • FAST: FIX Adapted for Streaming (FAST) is a protocol intended to low latency and high performance of large volume market data transmission with the use of low bandwidth.
  3. Session Protocols: It is a standard method for bidirectional message transmission between different financial institutions. It is a standard that defines how security and authentication is managed during message transmission. It also focuses to achieve trustful and lossless message transmission. It is categorized as below:
    • FIX Session Layer: It includes the process of login, message transmission and logoff.  It is a suggested implementation where a bidirectional institute can keep one session and perform a message exchange. The session remains the same with multiple time logoff and logon processes. It can be stopped intentionally or because of system or application failure.
    • FIXP: FIX High-Performance Session Layer (FIXP) is an extension of FIX Session Layer. It is a lightweight implementation method that guarantees high performance.
    • SOFH: FIX Simple Open Framing Header (SOFH) suggests the message transmission where the header contains message length and its encoding type.
    • FIXS: FIX-over-TLS (FIXS) suggest the use of Transport Layer Security (TLS). That provides a basic level of security. It is introduced as part of achieving Cybersecurity.

Implementations

In general, implementation of the FIX protocol can be called a FIX Engine. As FIX protocol standards are so common, different technical implementations of FIX protocol can communicate with each other without any issue. There are open-source and commercial libraries available by different programming languages like .NET, Java and python that implement FIX protocol standards. In the case of application integrations, it is good and easy to use such libraries. Some of them are as follow:

Implementation Name Programming Language Type
Quickfix C++ Open-source
QuickFIX/J JAVA Open-source
QuickFIX/Go Go Open-source
QuickFIX/n .NET C# Open-source
SimpleFIX Python Open-source
FIXjs Java Script Open-source
OnixS C++, JAVA,.NET C# Commercial
InfoReach C++, JAVA,.NET C# Commercial

Testing Tools

These are the tools that help to test FIX Engine implementations and that are as follows:

Tool Name Programming Language Type
FIXTest Python Open-source
VeriFIX Web-Based Commercial
ETP Studio Desktop Application Commercial
FixSpec Web-Based Commercial
FIXSIM Web-Based Commercial

Benefits

The following are benefits that businesses can get by using FIX Protocol

  • Flexibility: Any financial institute can easily migrate from one counterparty to others as with FIX, they will be following the same protocol. And it is also possible to manage multiple counterparties with a single implementation.
  • Low Cost: Single implementation can be used with multiple counterparties. Also, large institutions are using this protocol so the market has predefined implementations that reduce the cost for startups.
  • Reduced Complexity: For the financial FIX being a global financial institution of the world, it is becoming the common language for communication. Additionally, the financial institutions only need to understand FIX Protocol and then they can work with a large number of people or communities.
  • Security: FIX Protocol standards continue to review regarding challenges in the field of security and propose new standards to overcome such issues and achieve high security.

What is the future of FIX?

FIX Protocol needs to enhance its work standard by upgrading them with the latest technologies like digital currencies, cyber securities, and blockchain. Also, they need to focus on low latency with a high volume of data with a wide scope for AI to achieve feasibility in automation.

Final Words

There is no doubt that FIX protocol is a great achievement in the field of a financial software development world to automate, secure and perform digital-first communication. It is definitely a good step of rapid evolution with periodic updates for standards to solve real-world problems. FIX protocol also encourages the technical community to work on the open-source implementation standards and maintain the same pace with parallel updates.

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