UnaVista's Trade Repository - the all in one solution

The London Stock Exchange has been a hive of activity of late. It has concluded a deal to take over the clearing house LCH.Clearnet and its matching and reconciliation arm, UnaVista has applied for approval to act as a TR (Trade Repository) when that section of EMIR (the European Market Infrastructure Regulation) becomes active in 2014.

UnaVista was established in 2004 in the reference data space and has since grown out into a more post-trade focussed entity. “The motive for this was very positive feedback from clients saying that our technology was a good fit for this space,” says Mark Husler, head of business development information services at LSE.

“We have around 10 million actively traded multi-asset class instruments sitting on the system from the reference data space, so our c.600/700 clients in the post-trade arena also leverage that underlying reference data.”

The wave of regulatory reform that has swept through the financial industry post-2008 has created a lot of challenges in the post-trade environment but has also created a lot of opportunities. The key opportunity that UnaVista is trying to create for itself and for its clients is a multi-regulatory reporting platform.

“We currently process about one billion trades per year under MiFID (Markets in Financial Instruments Directive),” continues Mark. “A lot of those clients also use us for OTC trade confirmations. We offer a range of solutions and they are all using that same underlying technology stack. Whether it’s transaction reporting under MiFID, trade confirmation and matching between brokers and clients or our reconciliation services, all of them are then using that same reference data that sits beneath the technology.”

UnaVista is an Approved Reporting Arm under MiFID and there is a big opportunity to create one platform that enables clients to comply with multiple regulations. Many firms see the regulatory requirements as a burden, so the opportunity to simplify this process would certainly appeal.

“Customers have one piece of web-based technology, all hosted at the LSE, with lots of different ways to interact with it in order to comply with both regulations,” says David Nowell, head of industry relations and regulatory compliance at UnaVista. “We will take all of their data, enrich it with our data and normalise it, then we can provide that information to the relevant regulators.”

UnaVista is working towards the EMIR indicative timeline supplied by ESMA (European Securities and Markets Authority – the body responsible for EMIR’s implementation) on the assumption that its application will be approved. This a challenge for applicants since they will need to be ready to commence operations soon after approval, but the time and money committed to setting up a TR could be lost. This is not so much of an issue for UnaVista.

“Under MiFID we have been helping clients to shape their data for the regulator, whereas under EMIR we will be doing a similar job in helping clients prepare their data for a repository. That could be ours, or that of one of the other applicants,” says David. Either way, UnaVista will be helping to report if it is not accepting reporting itself.

So it’s clear that one way in which UnaVista will be able to differentiate itself from the other TRs is in its offering to meet more than one regulatory reporting requirement. Another way in which it could attract clients to use its service is by offering a straight-through reporting model, from clearing house (LCH) to repository (UnaVista).

“It’s easier for the clients to do it that way and it is also more cost effective,” says Mark. “First of all, though, it will be about offering the client that single solution to comply with both MiFID and EMIR. That’s a big differentiator. Price, too, obviously! We’ll have to be competitive on price.

“Also, I think being part of a larger regulated exchange under the LSE umbrella gives customers’ confidence that we will provide excellent service as we take our role as a regulated entity very seriously. I’m not suggesting for a moment that the others don’t, but we’re very experienced in that regard and consider it to be a core asset of the business.”

“The other areas that customers will look at are ancillary services,” adds David. “It isn’t just a case of looking at a trade repository as a warehouse, or somewhere just to store your trade, it’s what value added services can your repository offer? I think that’s where a lot of the competition will lie. What other areas of customer benefit can you offer to the client?”

Mark also points out the opportunities created by UnaVista’s Rules Engine, a powerful tool that can get sections of client data and decipher what needs reporting and under what regulation. “It’s not just MiFID and EMIR out there, there are several other regulatory requirements for market participants to comply with and we can help them,” he says. “We can collect the information once and help clients to comply with multiple regulations, effectively dragging out the relevant fields of data to create the report on their behalf.”

The idea of TRs competing isn’t universally popular, but that’s the way the market is headed. ESMA has had seven (at the time of writing) public applications to become a TR, of which UnaVista is one.

“If you look at the space in general, without competition innovation is starved; without competition pricing is not competitive and of course, without competition, clients don’t have choice,” says Mark on the subject. “I think it’s the right decision to allow natural economic and competitive forces to determine which trade repositories customers want to use.”

The main fear amongst objectors to this way of doing things is that it will be incredibly tough for the regulators to aggregate all of the necessary data in order to identify risks in the market. In the US, where trade reporting is already under way, CFTC (the Commodity Futures Trading Commission) commissioner, Scott O’Malia has been vocal in stating that the data being gathered isn’t putting the regulator is a position to identify risks such as that posed by AIG or the London Whale in having huge positions.

In gathering the number of trades, how can anyone asses the position of a company? The real risk in the derivatives market is in the position held, just like at AIG and with the London Whale. The risk is not in the number of trades.

“The simple answer is that, like all the other TRs, we’re in healthy dialogue with ESMA around the requirements,” says Mark. “One of the areas of discussion is exactly that – the calculation of positions. Another area is how we would then provide that information to the various regulators. It’s not just ESMA that has an interest here; there are the National Competent Authorities, too.”

If not the regulators, then at least the TRs themselves have some idea of how they can be effective. The April 2013 CPSS-IOSCO paper titled Authorities’ access to trade repositories data also raises the question of aggregation. “OTCD data will be held in multiple TRs, requiring some form of aggregation of data to get a comprehensive and accurate view of the global OTC derivatives market and activities. Absent that, the financial stability objectives of the G20 in calling for TRs might not be achieved.”

It is an issue that UnaVista is well aware of. “If we are granted trade repository status we will need to establish interoperability with the other repositories so that we can do matching – we’re required to match the two counterparty reports and if they don’t match then we need to send them back with reasons why they don’t match,” says David. “We can only do that, of course, if we speak to each other.

“The trade repositories, under ESMA, have to work together. Under any given trade there could be more than one report. Let’s say, for example, that there are four legs that make up a trade. If the counterparties involved have elected to use different repositories, naturally, the regulator has a job of aggregating that information and the only way that can work is if the repositories work together to reconcile the data. That’s one of the core requirements of us as a trade repository.

“The tricky element of all this is that ESMA hasn’t given us sight who all of the other applicants are.”

The UnaVista TR offering appears well set within the LSE framework. It is approaching the TR landscape from a successful data perspective and has a hugely successful background in data reporting under MiFID.

The alignment between, not just the TR requirement under EMIR but, all reporting requirements across the plethora of regulations, makes UnaVista a hugely attractive proposition to companies looking to simplify their requirements across multiple regulatory frameworks.

Whichever way ESMA goes and whatever approvals ESMA hands out, UnaVista will be positioned to assist clients in meeting their obligations.

Tags: LSEEMIRESMATrade RepositoriesUnaVistaMiFID