To FIX or not to FIX

Reflections from the Australia FIX Conference 2023

I'm really pleased to be attending the Australian FIX Conference in Sydney, having had a long association with the FIX Trading Community over more than a decade.

The FIX conferences are some of the best and most well-attended industry conferences, as they are community based and a rare multi-lateral 'coming together' of asset managers, brokers, regulators, technologists and exchanges into an open dialogue on the issues that affect the industry.

FIX as a protocol is widely prevalent in institutional trading, less so in retail trading, and in the last year I've made the transition from over 15 years in institutional brokerage, to retail brokerage, and the differences are fascinating.?

The burning question in my head is, who is more innovative? Institutional or retail? Where once I viewed retail as a simpler form of institutional trading, today I am far less certain. While FIX protocol is well established in institutional, retail is more of a green-field opportunity.

I'm going to write a long-form article about retail and institutional differences, when I get time, but in the meantime some observations, intermingled with my own opinions. I must stress they are my own opinions.

• From a regulatory perspective the retail sector remains elevated in the markets post-pandemic with ASIC expanding their supervision into OTC markets and retail participation, a key focus for their core strategic priorities. Feels at this point institutional regulation seems largely around enforcement and technology resilience.
• Institutional brokers have sophisticated quantitative tools on market micro-structure across global markets and optimising price/liquidity across auction mechanics. Retail traders don't have such sophisticated quantitative tools. Is this an opportunity for the retail investors to increase their sophistication and have better market intelligence and liquidity mapping tools? I've written before, probably the problem is data availability.
• Clearly there is a divide between the predominantly retail driven digital asset sector (De-Fi) and institutional trading (Trad-Fi). A lot of discussion centred around retail growth in ETF's both active and passive, and we heard it's not likely asset managers would ever go direct to client, remaining through advisors. With the De-Fi angle coming in later though, they have already created a tokenised version of a fund, an ETF using smart contracts with no tracking error. A classic Trade-Fi/De-Fi moment.
• Innovation in DeFi is happening across different protocols in retail investing from sophisticated traders who are digital natives with finance degrees, largely over non-FIX protocols based on web technologies. Institutional operates within a tight band of regulation and with slow moving financial intermediaries. The question therefore is, how much will FIX expand into digital, private wealth or professional retail?
• Liquidity providers are still predominantly using FIX, a protocol that is three decades old and proves restrictive to the programmatic trading possible through DeFi protocols. We need liquidity providers but is FIX the right protocol? It seems brokers largely don't have a choice in this matter, FIX is what institutional liquidity providers use. FIX for retail however, is far from mandatory.
• Active portfolio management through Artificial Intelligence still feels like a niche asset manager strategy, the discussion around AI in the institutional space still feels the same as a few years ago, while retail investors are ahead of the game with advanced off the shelf plug-ins and signal trading frameworks readily available. The use cases I hear from insitutional seem still largely about a natural language interface over a rules based or basic analytics system, or a privately trained GPT model. It feels a little underwhelming, I feel like we should have had macro factor-based trading interfaces by now, we still need traders that's for sure.
• There seems to be a huge divide between institutional and retail on Artificial Intelligence, institutional is still grappling with explanability and data quality. It feels like institutional, the bastion of leading edge monte-carlo simulations, black-scholes pricing, smart order routing, liquidity seeking algorithms and algo wheels, risks falling behind in this domain. It's undeniable there are complex factors involved, the obvious ones being large in scale transactions and regulation. Perhaps we need a regulatory sandbox to drive innovation forward.
• Trader Automation is still a big focus, doing more with less. Most applications of advanced algorithms seem to be about throughput and optimisation across program, high-touch and low-touch desks. Liquidity sourcing bots, blotter scanners, large filing notifications and making sense of unstructured information. Everyone seems to agree, technology is going to be key and isn't slowing down.

While I haven't formed any final opinion on who is more innovative, retail or institutional, at the moment it would seem a very close race.

When it comes to the FIX protocol, while I haven't been involved as much lately as I have in the past, I have been researching FIX protocol and the application to retail in recent times. In part it's a re-familarisation, and in part a new sector for FIX and possible revitalisation. My general feeling is that if FIX is to evolve and flourish it is most likely going to come from retail or private wealth. The session management, routing and built in resiliancy features are useful, but in a more homogenous and less complicated retail flow, most of the workflows feel less relevant. For FIX, retail is an opportunity, but it's far from certain.

In any case, it is enjoyable to be seeing my past cohorts from almost a decade with the FIX Trading Community. Still a great community and a great conversation.