Electronic Trading Protocols are a set of rules that govern the way orders are transmitted and executed between buyers and sellers in the securities markets.
They provide a common framework for all market participants to follow when trading securities. Electronic Trading Protocols are used in all types of securities markets, including equities, fixed-income, and derivatives markets.
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Who Invented Electronic Trading?
A programmer called Joshua Levine joined a company called Datek Securities in the 90s and built upon their high-frequency trading strategies. Joshua Levine and another associate of Datek Securities started a company called The Island ECN in 1996 and made its first electronic trade in 1997. They were the first venue completely reliant on electronic trading with no human input.
List of Electronic Trading Protocols
Virtually all U.S. and European exchanges use electronic platforms instead of or in combination with physical ones. The NASDAQ exchange was the first to offer complete functionality through electronic trading. Examples of exchange-owned electronic trading platforms are NYSE Arca and Globex (NYSE: GLOB).
Here’s a list of the protocols used around the world.
USA
| Exchange | Native Order Flow | FIX Order Flow | Market Data |
|---|---|---|---|
| B3 (stock exchange) (aka BM&FBovespa) | FIX | FIX4.4 | UMDF (FIX/FAST) |
| Bolsa Mexicana de Valores | FIX | 4.4 - version 2.4 | INTRA (UDP) / SIVA (TCP) |
| BIVA | OUCH | FIX 5.0 | ITCH |
| Boston Options Exchange | SAIL | 4.2 | HSVF |
| Cboe | BOE | 4.2 | PITCH |
| Chicago Mercantile Exchange | iLink | FIX | Simple Binary Encoding |
| Montreal Exchange | SAIL | 4.2 | HSVF |
| Nasdaq | OUCH 4.2 | - | ITCH5.0 |
| NYSE | Pillar | 4.2 | |
| TSX | FIX Client | TSX-FIX | QUANTUMFEED |
| Aequitas Neo | FIX | FIX | NITCH |
| ICE | FIX | FIX | iMpact |
Asia
| Exchange | Native Order Flow | FIX Order Flow | Market Data |
|---|---|---|---|
| Taiwan Stock Exchange | TMP (TWSE Message Protocol) | 4.4 | |
| Taipei Exchange | TMP (TWSE Message Protocol) | 4.4 | |
| Tokyo Stock Exchange | Arrowhead | 4.2 | FLEX |
| Singapore Exchange Securities Trading (SGXST) | OMEX | - | |
| Singapore Exchange Derivatives Trading (SGXDT) | OMEX | - | |
| Hong Kong Stock Exchange (HKSE) | OCG | - | OMD |
| Hong Kong Futures Exchange (HKFE) | OMEX | - | OMD |
| Exchange | Native Order Flow | FIX Order Flow | Market Data |
| Taiwan Stock Exchange | TMP (TWSE Message Protocol) | 4.4 | |
| Taipei Exchange | TMP (TWSE Message Protocol) | 4.4 | |
| Tokyo Stock Exchange | Arrowhead | 4.2 | FLEX |
| Singapore Exchange Securities Trading (SGXST) | OMEX | - | |
| Singapore Exchange Derivatives Trading (SGXDT) | OMEX | - | |
| Hong Kong Stock Exchange (HKSE) | OCG | - | OMD |
| Hong Kong Futures Exchange (HKFE) | OMEX | - | OMD |
Europe
| Exchange | Native Order Flow | FIX Order Flow | Market Data |
|---|---|---|---|
| Cboe Europe | BOE | 4.2 | PITCH |
| Eurex | T7 ETI (Derivatives Markets Reference) | 4.4 | EOBI / FIX/FAST |
| Euronext | SBE | 5.0 | SBE |
| Borsa Italiana IDEM Derivatives | SAIL | 4.2 | HSVF |
| Liffe (ICE EU) | FIX | FIX | iMpact |
| London Stock Exchange | Millennium | 5.0sp2 | GTP |
| Moscow Exchange (MICEX) | MTESRL-TSMR | 4.4 | FIX/FAST |
| Moscow Exchange (RTS) | Plaza2 | 4.4 | FIX/FAST |
| Oslo Børs (Derivatives) | SBE | 5.0 | SBE |
| Oslo Børs (Equities) | SBE | 5.0 | SBE |
| London Stock Exchange UK Derivatives | SAIL (Native) | 4.2 | HSVF |
| Turquoise | Millennium | GTP | |
| Warsaw Stock Exchange | UTP | 4.4 | XDP |
| Xetra | T7 ETI (Cash Markets Reference) | 4.4 | EOBI / FIX/FAST |
Who Uses Electronic Trading Protocols?
The use of Electronic Trading Protocols is mandatory for all market participants in securities markets. They ensure the orderly and efficient flow of orders between buyers and sellers. Electronic Trading Protocols help to reduce the risk of trading errors and ensure that all orders are executed fairly and in accordance with the wishes of the parties involved.
Examples of Electronic Trading Protocols
Trades that take place via electronic quote requests, electronic communication networks, or dealer platforms are examples of electronic trading; dark pools and alternative electronic platforms are also included. Settlement and reporting procedures that are electronic fall under this category as well.
This includes high-frequency trading on exchanges and trades executed and settled through voice, but controlled and accomplished electronically. The electronification of these fixed-income trading aspects has been continuous. There are now several electronic trading platforms (ETPs), systems that link purchasers with sellers, each with its own set of customers and trade protocols.
Conclusion
The rise of electronic trading has been spurred by several factors, including the need for greater efficiency and the desire to reduce costs. Electronic trading allows orders to be transmitted and executed quickly and efficiently which can help to reduce the costs of trading.
