Another industry jolt: implications of Deutsche Börse withdrawing from the regulatory reporting market
2020 has been a wild ride for the regulatory reporting industry with some of the most unlikely twists and turns we have seen in a long time (and that is not even factoring in COVID-19). There have been constant changes including the start of new regulations (SFTR), modifications to existing regulations (EMIR Refit), postponement of parts of regulations (MAS regulation) as well as one of the most talked-about topics of the decade that will also impact transaction reporting – Brexit.
And while you could probably argue that many of the above changes are part and parcel of the normal ebb and flow of a maturing market, two significant events from prominent market players within four months, is not. First came the announcement from CME in May about their departure from Asia and Europe as a TR/ARM and vendor and now the news that Deutsche Börse is withdrawing from the market through the sale of RRH to MarketAxess Trax who is already an end point for ARM and APA reporting.
So, what does this all mean for the market?
Well, firstly there is the issue of market end-point consolidation. With the exit of these providers comes the stark reality of the diminishing number of market players and with it the inevitable effect of reduced competition in the short to medium term and impact on pricing.
As mentioned in our analysis on CME’s departure of the space, CME was competitive on pricing, so at its simplest, their departure will lead to the average price of trade reporting going up. It’s not unlikely that pricing for transaction reporting will continue to increase as a result of this further reduction in competition with the Deutsche Börse now also exiting. Market participants may need to assess options for keeping costs as low as possible such as consolidating their trade reporting to a single service provider to access the benefit of consistency and volumes. Using RegTech vendors to improve and automate the process to reduce the total cost of ownership may be an appealing option.
However, while one window closes another door opens and this consolidation also brings with it opportunities, or shall we say further incentive, for other end-point players to increase their offering by providing services they don’t currently have, such as APA trade reporting. As these players explore opportunities to enter new markets, the industry may benefit from new competition, enhanced service quality and the introduction of new technologies.
Unlike CME’s exit that forced their clients to find a new home for their regulatory reporting and/or select a new ARM/TR service provider within six months, for existing Deutsche Börse clients, the transition is expected to be relatively smooth. There’s enough time to implement the change and only one regime (MiFID) is impacted. Clients will be supported by MarketAxess (Trax), a reputable ARM and APA provider and have been an important partner of ours for MiFID II transaction reporting. In addition, Deutsche Börse did not offer client customisation of services and as such, the transition is expected to be more straightforward.
Ronen Kertis, CEO at Cappitech commented, “We hope that the transition will go smoothly for all involved and that market participants will take this opportunity to streamline their transaction reporting in an effort to maintain CAT (complete, accurate and timely) reporting, while at the same improving their reporting efficiency, for example, by automating their reporting processes and using a single point for technical integration as well as for monitoring all their global regulatory reporting.”
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