Chapter 4 - Industry Standards

Abstract

Industry standards are created after extensive discussion between experienced industry players and are helpful in reducing errors, managing risk, and increasing efficiency and productivity. If they are published free of license fees, they are known as open standards. For a straight through processing (STP) environment, three types of standards are relevant that include business standards, technology standards, and financial ontologies. This chapter focuses on financial technology standards relevant to creating an STP environment. It introduces financial technology protocols and discusses the value of using industry standards for electronic communication of trade data. Currently, three industry standards, FIX, FpML, and SWIFT, are used for system communication of financial data in the securities industry. Firms build their own communication vocabularies for exchanging financial data, and in order to use industry standards, they must build translators that can convert the industry format and vocabulary to their legacy ones. An insight is provided into how firms contribute to, transform, and extend industry standards to meet their own needs. The move toward industry standards is crucial for achieving STP in the trade lifecycle, and more and more firms are adopting one of these ontologies for interfirm communication. However, concern remains over which format to use for high-speed high-volume trade and market data, and firms struggle to translate industry standards to their internal legacy data formats.