A Potential FIX for Disparate Blockchain Systems

It is apparent that much of the value offered by the technology will not be realized if the various systems

The evolving blockchain economy got another boost last month when the FIX Trading Community announced the creation of the Digital Currency and Blockchain Working Group.

FIX (Financial Information Exchange) has become the most widely used messaging protocol in the global securities markets, designed to optimize the efficiency of electronic trading. It is managed by the FIX Trading community, which has subsets of various working groups overseeing its development.

Join the iFX EXPO Asia and discover your gateway to the Asian Markets

Similarly, Bitcoin’s blockchain and distributed ledger systems inspired by it have the potential to radically transform the securities industry. Real-time settlement and greater transparency may save billions in costs, eliminate counterparty risk and reduce error.

The new working group will be focused on bringing the two together. It would define use cases and integration points for blockchain technology in capital markets and recommend best practices for FIX implementation.

The group is led by Sean Ristau, Head of Wealth Management & Derivatives at Raptor Trading Systems, Ron Quaranta, CEO of Digital Currency Labs LLC and Ryan Pierce, Director and Technology Architect, Engineering and Execution at CME Group.

Speaking with Finance Magnates, Quaranta and Ristau expanded upon another potentially major benefit of the collaboration: the unification of multiple disparate blockchain systems.

Dozens of banks have begun experimenting with distributed ledgers. Some have developed their own (e.g. Citicoin), others are working with Bitcoin’s and others still toying with Ethereum.

United Chains

It is apparent that much of the value offered by the technology will not be realized if the various systems are not interoperable. We would just be replacing one set of incompatible systems with another, perhaps with some benefit left over for intrabank transactions.

To address this, two approaches have evolved. Groups of banks are being recruited into consortiums (e.g. R3) to collaboratively develop a single ledger system. Similarly, technology providers (e.g. itBit?) are developing a framework, perhaps of a white-label variety, with input from the banks which will become its end users.

Suggested articles

Ready to kick-off your Trading Game with Manchester United?Go to article >>

The second approach has been to develop standards, to be adopted across the industry, that would ensure compatibility even between separately built systems.

With the new FIX blockchain working group, we may have yet another approach. Whereas the second approach ensures that the blockchain systems themselves are developed in an interoperable fashion, the introduction of FIX can serve as the necessary “glue” to connect even disparate blockchains. Quaranta and Ristau explained:

“Our goal is to work with each of the Blockchain providers and ensure that, if needed, FIX Trading Community Members have the necessary access and tools to conduct regular business operations. Whether public or private, if the organization running a particular Blockchain is willing to allow FIX Protocol access, FIX will be positioned to allow that access through our standard protocol.”

As each blockchain may have its own nuances, and there may be niche firms administering them with their own special needs, the development of FIX would allow them to play into the financial ecosystem. They continued:

“We see value in each of the Blockchain initiatives, various groups will have different needs, FIX Protocol’s flexibility allows adaptation to these needs.”

They added that firms have already started using FIX in their blockchain implementations, but “until the formation of this group there was no set standard from the FIX Trading Community.”

Even blockchain systems that are fundamentally different, such as private “permissioned” blockchains versus those of Bitcoin, may be able to work together should enough demand arise.

“FIX will continue to adapt to the changing Digital Currency and Blockchain space, whether through standard Bitcoin Protocol, Blockchain technology, or Open Asset Protocol based implementations. Firms can successfully use Open Assets Protocol with FIX Protocol currently, if there are revisions to Open Assets Protocol that require additional work flows or tags the FIX Trading Community working group will act and ensure those needs are met,” they said.

The true extent of FIX’s relevance in the accelerating blockchain race over time remains to be seen. More certain, however, is the increasing role of tools introducing much needed flexibility to the evolving discipline.

Got a news tip? Let Us Know