Financial Technology

Financial Technology

August 23, 2013

Yokahama Merchantile Exchange to Use New Messaging System

On Monday, the Yokohama Mercantile Exchange (YKMEX) announced that it would start using the Financial Information Exchange Protocol (FIX). This protocol is almost universal, used by brokerages, exchanges, banks and regulators globally.

FIX was first developed in 1992 to facilitate trading between Fidelity Investments and Salomon Brothers. It is an open standard; there is no charge to use it.

Today almost all stock exchanges, mutual funds, money managers and investment firms use FIX. FIX Protocol Ltd. serves as the governing body that maintains the specification for the protocol, much like ANSI, ISO or W3C (News - Alert) do for specifications and standards they control. 

Based in Yokohama, Japan, YKMEX is a futures exchange where contracts in financial markets, commodities and indices are traded. YKMEX made the move in response to its customers’ widespread adoption of FIX. It allows more efficient message routing, resulting in faster transactions.

The move to adopt the FIX standard was something YKMEX had to do because of a spike in foreign investors. It had to adopt what was an accepted business practice if it was to maintain its credibility with firms and investors.

Image via Shutterstock

"The trading on Yokohama Mercantile Exchange has tripled in the last year. Much of this can be attributed to foreign buying on the YKMEX, as investors look for opportunities in our emerging market," said Theodor Murano, chief operating officer for YKMEX.

Using the FIX protocol alone may not be enough to be reliable. Another exchange that uses FIX, NASDAQ, shut down due to technical problems on August 22. More glitches have come from other sources. A couple of days before the NASDAQ problems, Goldman Sachs submitted errant trades that affected options markets.

YKMEX was wise to upgrade to FIX as it made the exchange compatible with global markets. With so many exchanges, brokerages and banks networked together, the complexity of trading securities is unfathomable. More testing needs to be done and backup systems put in place to make the exchanges more reliable.

Edited by Alisen Downey

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