FIX Protocol Ltd., the owner of the global messaging format for financial trading, announced the first guidelines and best practices for electronic bond markets as new platforms open in response to changing regulations.
Guidance on how to trade and identify traded securities, data, quotes and prices were published on London-based FIX’s website today. FIX is focusing on cash markets for government, high-yield and corporate bonds after tackling the over-the-counter swaps market in March 2012.
Lenders that traditionally acted as middlemen, by holding inventories of bonds until customers sought to buy them, are starting electronic trading platforms that match buyers and sellers. Citigroup Inc. opened Citi Credit Cross last month. Goldman Sachs Group Inc. began GSessions for corporate bonds in 2012. FIX started drawing up best practice guidelines at the request of 12 fixed-income dealers in June 2011.
“This market has witnessed massive change and, as it becomes increasingly electronic, the protocol is necessary” Sassan Danesh, who co-chairs FIX’s global fixed income committee, said today in a statement. “Historically, fixed-income markets have made less use of open trading standards such as FIX for electronic trading compared to other asset classes. This has been because a great deal of fixed-income trading has been carried out over voice.”
The European Union is proposing that traders must disclose firm prices before and after a transaction is completed under its Markets in Financial Instruments Directive, known as Mifid II. Almost $2 trillion of corporate debt was issued in Europe last year, according to data compiled by Bloomberg. EU Financial Services Commissioner Michel Barnier is reviewing Mifid as part of a wider overhaul of the securities industry. In the U.S., the Dodd-Frank regulatory overhaul started in 2010 in reaction to the role of swaps contracts in the 2008 credit crisis.
“This should dramatically promote industry adoption as they will provide consistent guidance to bond market participants looking to explore the many benefits that standardisation offers,” UBS AG’s Ric Elvir, who co-chairs FIX’s global fixed-income committee, said in the statement. “The next stages of this project will help to continue this progress, expanding the use of FIX for other credit base products.”