Exchange Protocols and Connectivity

Overview

Trading requires connecting to exchanges through standardized protocols. Understanding these protocols is essential for building trading systems, ensuring proper order handling, and optimizing execution speed.

Difficulty advanced

fix protocol (financial information exchange)

Overview

FIX is the industry standard for electronic trading communication:
- Used by most institutional trading systems
- Session layer + Application layer
- Text-based (tag=value) format
- Versions: 4.0, 4.1, 4.2, 4.3, 4.4, 5.0

Not optimized for latency (text parsing overhead).
Used for order routing, not HFT.

Session Layer

Message Flow:
1. Logon (MsgType=A)
2. Heartbeat (MsgType=0) every 30 seconds
3. Test Request (MsgType=1) / Resend Request (MsgType=2)
4. Logout (MsgType=5)

Key Fields:
8=FIX.4.4 (BeginString)
9=BodyLength
35=MsgType
34=MsgSeqNum
49=SenderCompID
56=TargetCompID
52=SendingTime

Application Messages

New Order Single (MsgType=D):
35=D  (New Order Single)
11=ClOrdID        (Client order ID)
55=Symbol
54=Side           (1=Buy, 2=Sell)
38=OrderQty
40=OrdType        (1=Market, 2=Limit)
44=Price          (for limit orders)
59=TimeInForce    (0=Day, 1=GTC, 3=IOC, 4=FOK)

Execution Report (MsgType=8):
35=8  (Execution Report)
11=ClOrdID
150=ExecType        (0=New, 1=Partial Fill, 2=Fill, 4=Canceled, 8=Rejected)
39=OrdStatus        (0=New, 1=Partially Filled, 2=Filled, 4=Canceled)
31=LastPx           (Last filled price)
32=LastQty          (Last filled quantity)
14=CumQty           (Cumulative filled quantity)

Cancel Request (MsgType=F):
35=F  (Cancel Request)
11=ClOrdID
41=OrigClOrdID      (Original order ID to cancel)
55=Symbol
54=Side
38=OrderQty

Exchange-Specific Protocols

NASDAQ: OUCH/ITCH

OUCH (Order entry):
- Binary protocol
- Ultra-low latency
- Used for order entry to NASDAQ matching engine
- Message types: Enter Order, Replace Order, Cancel Order, Execute

ITCH (Market data):
- Binary protocol
- Full order book data
- Message types: System Event, Stock Directory, Add Order, 
  Order Executed, Order Delete, Order Replace, Trade

NYSE: Pillar

Pillar (Unified platform):
- Replaced legacy Pillar, OpenBook, and Display platforms
- Binary protocol for both orders and market data
- Supports equities, options, and ETFs

CME: SPECTRE/FAST

SPECTRE (CME Globex protocol):
- Binary protocol for order entry
- Used for futures and options

FAST (FIX Adapted for Streaming):
- Compressed binary FIX
- Used for market data dissemination
- Reduces bandwidth by 70-90% vs. text FIX

IEX: DEEP/TOUCH

DEEP (Dissemination of Equity Execution and Price):
- Real-time depth of book data
- Includes IEX-specific order types (D-Orders, P-Orders)

TOUCH (Top of Book):
- NBBO data from IEX

Order Types by Exchange

Order Type	Description	Supported By
Market	Execute at best available price	All
Limit	Execute at specified price or better	All
IOC	Immediate or Cancel	All
FOK	Fill or Kill	Most
GTC	Good Till Canceled	Most
GTD	Good Till Date	Most
Stop	Triggered at stop price	Most
Stop Limit	Stop + Limit combination	Most
Pegged	Price pegged to reference	NASDAQ, NYSE
Reserve/Hidden	Display partial quantity	Most
Intermarket Sweep	Bypass SIP, sweep multiple venues	US Equities

Connectivity Architecture

                    ┌─────────────┐
                    │   Trading   │
                    │   System    │
                    └──────┬──────┘
                           │
                    ┌──────┴──────┐
                    │  Gateway /  │
                    │  Adapter    │
                    └──────┬──────┘
                           │
              ┌────────────┼────────────┐
              │            │            │
        ┌─────┴─────┐ ┌───┴────┐ ┌─────┴─────┐
        │ Exchange A│ │Exchange│ │ Exchange C│
        │   (FIX)   │ │ B (OUCH)│ │ (SPECTRE) │
        └───────────┘ └────────┘ └───────────┘

Gateway Responsibilities:
1. Protocol translation (FIX → exchange protocol)
2. Order validation
3. Risk checks
4. Sequence number management
5. Heartbeat monitoring
6. Reconnection handling

Checklist

• [ ] FIX session parameters configured correctly
• [ ] Exchange-specific protocol understood
• [ ] Sequence number management implemented
• [ ] Heartbeat monitoring active
• [ ] Automatic reconnection logic
• [ ] Order validation before sending
• [ ] Risk checks in gateway
• [ ] Latency measured and monitored
• [ ] Message logging for audit trail
• [ ] Disaster recovery plan tested

References

1. FIX Trading Community. (2023). "FIX Protocol Specification." FIX Trading Standards.
2. NASDAQ. (2023). "OUCH 5.0 Specification." NASDAQ.
3. CME Group. (2023). "SPECTRE Order Entry Specification." CME Group.