The Quiet Side of Reform

Take the efforts of the Fixed Income Connectivity Working Group (FICWG), which last week announced the completion of its connectivity standard developed on a FIX protocol framework. Led by major investment banks in consultation with venue operators, such as Bloomberg, Tradeweb and others, the efforts of FICWG have been to facilitate a less-costly approach to market access and connection between sell-side brokers and institutions, and utilities such as swap execution facilities (SEFs).

It's been a remarkably swift process, as well. In around one year, the FICWG has managed to bring the operators on board, hire two consultancies for technical support, and it's getting ready to roll out the standard after various updates to keep up with regulatory developments. Sassan Danesh, managing partner of Etrading Software, which has been one of the technical supports, said that it provides a model for future, similar developments when I spoke with him.

Leading from the Front
It's not the first example of industry-led efforts, but it's been one of the more efficient. The Legal Entity Identifier (LEI) has had a great deal of industry involvement in its formation, alongside regulators, and FIX working groups have proven effective in handling complex subjects for standardization.

It's a marked contrast to the level of debate, attack and counter-attack that typifies regulatory rulemaking. You only need to glance at the level of vociferous comment leveled at the Commodity Futures Trading Commission (CFTC) and Securities Exchange Commission (SEC) over the Dodd-Frank Act component rules, even by their fellow overseers, to see what a laborious process implementing reform has become.

Industry-led bodies offer rapid discussion by those at the coal face, as it were. For standardization in particular, they can facilitate sensible, practical implementations that enrich and add value to a reform process. No thought is spared for verbosity, however. I frequently hear black humor over the size of new rules and the attention they require─Dodd–Frank runs to over 1,200 pages, for instance─but FICWG's document is 500 pages over four volumes for one standard.

Industry-led bodies offer rapid discussion by those at the coal face, as it were. For standardization in particular, they can facilitate sensible, practical implementations that enrich and add value to a reform process.

Weight of Experience
This isn't an argument for self-regulation, bear in mind. Most industry practitioners will agree that the idea of internal oversight is not a workable one, and particularly after the government bail-outs during the height of the financial crisis, it will never happen. However, for drilling down into the minutiae of technology-related implementations, working groups such as FICWG are perfectly suited. Leaving aside the fact that some regulators even admit their agencies are not technically adroit enough to properly perform oversight functions, they have better things to do, in reality, than legislate the configuration of protocols for trade message interaction.

There's a safety element to this as well. Despite a number of mishaps lately that have claimed coverage internationally, such as Knight Capital's trading loss, the botched Facebook initial public offering on Nasdaq, and even further back, the Flash Crash of May 2010, the people who best know the internal systems of trading platforms and internal architectures in banks and brokers are banks and brokers. Connectivity and redundancy issues are best left to those who build the systems, rather than people from outside of them, with caveats around ensuring that appropriate levels of risk management are in place.

On a side note, you may have noticed that the Sell-Side Technology alert and Editor's Letter did not go out at 6 p.m. BST/1 p.m. ET on Friday as it usually does. This is deliberate, as we're experimenting with different delivery times to better suit our readers' schedules.

I'd be interested to hear from you regarding when you'd like to receive the alert, so please do drop me a line at james.rundle@incisivemedia.com, or on +44 207 316 9811 if you have a suggestion or preference. My colleague Anthony Malakian, over on Buy-Side Technology, will be trying different delivery dates over the next month as well.