Thanks, but no thanks. When it comes to connecting to electronic fixed-income trading venues, the FIX protocol would be the first choice for most bond dealers. That's not the case for the Bond Direct division of New York-headquartered Jefferies & Co. Instead, it rolled out the Qwik KonneKT platform from Kestrel Technologies to provide translator-in-a-can capabilities to all of the firm's connections to the various fixed-income ECNs.
Bond Direct has not forsworn FIX, says Craig Berman, vice president of technology at Bond Direct. "It's not particularly avoidable; it's the way that everyone is going. It's taking a long time for the acceptance process to go by than I thought it would when it was first introduced." He admits that the protocol has its own set of problems, "not the least of which is that as new securities are invented, FIX is trying very hard to keep up."
Currently, the bond dealer uses FIX to import and export data from its 20 traders and 100 salespeople to the firm's Bloomberg connection.
Berman's chief issues with the FIX protocol are the constant changes occurring within the standards, which leads to necessary updates to the associated internal systems, and the various FIX dialects that trading venues tend to incorporate.
"Everyone seems to toss some wacky things into FIX to make it fun," says Berman.
FIX Protocol Ltd, the group behind the standard, has been working within the fixed-income community to prevent this fracture within the industry with its FIX certification initiative, which was launched in early 2004.
"The FIX certification program attempts to mitigate those different interpretations of the protocol," says Lisa Taikitsadaporn, executive vice president and COO of Boston-based consultancy Brook Path Partners and co-chair of the technical sub-committee for the FPL's global fixed-income committee "The certification program helps minimize someone using the protocol one way and someone else using it another way."
Prior to deploying the platform, Bond Direct's manual process meant sending flat files with the firm's value, price and position data via the FTP protocol every 15 minutes and prevented them from doing live updates.
"It was a little better than a Rube Goldberg situation, but not as good as a fully automated process," says Berman.
Bond Direct investigated a number of third-party products to handle the translation issues and selected a predecessor of the current Qwik KonneKT platform at the end of 2003.
"We knew all about Kestrel and they kept up with us. They saw the problems we were having, made suggestions and composed a number of solutions that would be effective for them and for us," says Berman.
Bob Fawls, a partner with Boston-based consultancy Basis Point Group, is not surprised about the Bond Direct's decision and expects to see similar decisions growing in popularity as time goes on. Once strictly the preserve of large firms with deep pockets, the need for these platforms has grown as the number of needed network connections increased, Fawls says. "For the most part, the larger firms wrote their own interfaces and it was a no-brainer from a cost and effort standpoint for them to say to the vendor community, 'Here, you can do this,'" he says.
Although the new platform is easier to manage, Berman and Fawls say that the platform is far from a FIX killer.
This translator-in-a-can won't kill deployed FIX engines anytime soon, says Fawls. "Those are already there, and if OMS vendors suggest that a firm connect to a venue using a specific FIX engine then most firms take that suggestion," he says.
"It's not designed to be a FIX killer; it's designed to be able to communicate with anything you have out there," says Berman. "If that happens to be FIX, so be it."
The Rollout
The Bond Direct division of the bank has relied on Kestrel Technologies in one form or another since the summer of 2001, says Berman, who supervised the rollout of the latest platform, which was "a matter of sitting back and waiting for the CD to come."
The most difficult part of the deployment was a matter of simple logistics. "Because it was a CD installation, someone actually had to visit the machines physically," Berman says. This meant that someone needed to access the corporate backup servers in Texas. "I had to fill out forms to get someone to actually visit the machine, but beyond that it was a matter of 'click here, click here and call us,'" he says.
Once the new platform began production the changes in the back office were completely invisible to the bond trader, which Berman says he likes.
The immediate benefit for the investment bank was the elimination of manual trade entry process. Prior to the new platform's deployment, salespeople would receive word of a trade, stop what they were doing and enter the information from the MarketAxess system into the Bloomberg system in order to process the trade.
"Now with the new platform being where it is, the trades flow through properly," says Berman.
The hard-dollar return-on-investment (ROI) of the new platform hasn't been calculated, but Berman says there isn't a way to measure the value of automating manual processes. "I know that there is an increase in productivity associated with the deployment," he says.
Without ROI figures to provide to his CFO, was it hard to get the green light for the project? No, Berman says. "Of course, you need to get a sign-off anytime that you need to spend money, but it wasn't a hard sell," he says, adding that the bank needed something to handle all of the communications connecting to the electronic trading venues. "We're spending a fortune to be members of TradeWeb, MarketAxess, and so on. The job is to do it right. If it costs an extra $30,000 or $40,000 to do it the proper way, then you spend the money. There's no reason to do it halfway."
In full disclosure, Jefferies & Co. made a $15 million investment in Kestrel Technologies back in 2000. The investment did not give the bank a seat on the board of directors, "nor do they take an active role in the company," says its CEO.