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A-Team Insight Blogs

Wandering Off Course?

Back in the summer of 2008 I wrote a feature for ATiQ on the grand plans for an “investment roadmap” for standards that was launched by three of the main players in the financial messaging standards world – FIX Protocol (FPL), the International Swaps and Derivatives Association (ISDA) and Swift. However, despite the fanfare at the time around the development of standards interoperability on a global scale, very little has been said about the roadmap since. It seems that it may well have wandered off course.

It is no secret that previous attempts to tackle the securities industry’s proliferation of different messaging protocols, which overlap in many areas and provide a rather messy patchwork of coverage, have ended in failure. GSTPA anyone? But, back in 2008, the roadmap and its promise of interoperability seemed to offer some ray of hope for the future.

After all, the rational argument for a more structured approach to messaging standards across the industry is sound. At the moment, in order to be able to track and manage message flows, institutions still have to maintain a number of disparate systems and the process often involves a certain amount of duplication, thus introducing the spectre of operational risk as well as increased cost. A reduction in cost and risk, especially following a crisis, is an obvious win. If only it was as simple as all that.

Standards convergence seemingly failed because of firms’ unwillingness to fork out the cash to move from one standard to another without a significantly compelling argument to do so (read, return on investment or a regulatory mandate). For example, this is the problem for those that have invested in ISO 15022 standards for transaction messaging and are now being encouraged to move to ISO 20022, although for this particular message type many users see very little benefit in this move.

Interoperability has therefore been touted as the bright new future, where firms are not forced to adopt new standard formats but instead an environment of coexistence and cooperation is fostered. The roadmap was indicative of this stance and many bought into the idea: as well as the three standards bodies, for example, the International Securities Association for Institutional Trade Communication (ISITC) also gave its backing to the initiative.

The idea behind interoperability is simple, in that rather than all standards converging under one roof, each retains its own syntax and format but mapping between these standards is introduced to ensure that conversion between them can be performed automatically. This is by no means a new concept; there have been a number of collaborative projects running under the banner of interoperability over the last couple of years.

However, the investment roadmap was proposed to be much larger in scale than other projects on the go. According to the standards bodies, the aim was to provide market participants with a visual map of the connections between the three main industry standard protocols: FIX, ISO and FpML. It was also to cover all the appropriate business processes across the major asset classes and define an agreed path for future initiatives by identifying gaps and areas of overlap.

The focus of the interoperability aspect was to be around the transition or “peering” points between different standards in order to reduce the requirement for the maintenance of multiple syntaxes within the same area of the transaction lifecycle. The focus of these efforts therefore was to be around the development of a common data dictionary to ensure that all market participants were using the same common set of data elements. A laudable goal, but one that has progressed very little over the last two years.

When speaking to Arun Aggarwal, managing director of the UK, Ireland and the Nordics for Swift, earlier this month, he admitted that the roadmap had stalled, but contended that the network operator hasn’t forgotten about the idea of interoperability: “The roadmap has not extensively progressed over the last two years but interoperability is a key feature of 2015. There has been a subtle shift in our strategy to a focus on coexistence because we understand that there are different paces for standards adoption, rather than forced migration.”

So, Swift has accepted that it can’t be all things to all men and it is now working on standards interoperability and compatibility in areas such as corporate actions as part of its new five year strategy. But that still doesn’t explain what is going to happen to the investment roadmap and its dream of full interoperability between standards.

Unfortunately, for now, it seems that it is yet another case of optimistic rhetoric that may never come to anything in reality. As with all grand ideas, they need someone to follow them up with action.

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