Against the clock
18 August 2020
Ronen Kertis, founder and CEO of Cappitech, discusses why the closure of CME’s regulatory service could cause the price of reporting to rise and make firms rethink what they look for in a provider
Image: Ronen Kertis
What are the key challenges market participants face with this shift in the market?
The CME announcement was a shock for much of the market and it was quickly clear that it would be very important to ensure that ongoing regulatory processes will need to continue uninterrupted. A seamless transfer is therefore absolutely central to firms’ considerations.
Of course, the need to take on a new regulatory process, including onboarding with a new vendor and/or trade repository (TR)/approved reporting mechanism (ARM) also adds a burden to firms at an already difficult time. Limited resources and budgets, along with time constraints, are all adding pressure to firms as they consider their options.
For vendors and other TRs and ARMs, there will be the need to prepare to handle the additional volumes as a result of this migration. This is particularly true under the European Markets Infrastructure Regulation (EMIR) which requires full history porting from the CME to the new TR.
What is likely to be the biggest impact of CME’s departure?
Inevitably, pricing is likely to change following CME’s departure. CME has historically been the most competitive on pricing, so the average price of trade reporting will immediately increase. Necessary ongoing investment is also likely to impact price and the CME’s departure strongly suggests that the lower price was unsustainable. Costs are impacted by the huge volume of data involved in reporting, the need for quality technology and services and the cost of complying with evolving regulatory requirements. Having said that, vendor pricing will remain lower than the total cost of ownership for a firm developing its own solution and vendor solutions will benefit from being able to share the build cost among clients while simultaneously ensuring a better product, partly as a result of collaboration.
If price becomes the key factor, service is likely to be negatively impacted as firms reduce investment to meet lower cost demands. However, we are optimistic that if a fair market price can be established, clients will focus decision-making based on the quality of service and products on offer, driving the development of high-quality service and the introduction of improved products that meet client requirements.
Are clients likely to continue to use vendors or shift to working directly with TRs and ARMs?
Many firms like the idea of shifting directly to TRs but there are challenges around the technology required and the potential effort involved when new technology becomes standard or regulatory changes take place. Implementing this in-house is often difficult and expensive. Two months since the CME announcement, we’re seeing a lot of clients settle on the idea of continuing to use a vendor, but doing so with very clear requirements and long-term key performance indicators to help them manage change over time.
What are clients most focused on as they look to review their processes and service providers?
Data transformation and porting is probably the single most important consideration in the first instance. Data porting is, technically, one that needs to be dealt with between the CME and the new TR but the sheer volume of back data may cause problems if not done sufficiently in advance.
When submitting data to a new TR/ ARM or vendor, clients want to be able to provide the same raw file they were sending previously, requiring less work to adapt to a new provider and making it more likely that they can meet the deadline.
Clients are also very interested in ensuring that their vendors are ARM/TR agnostic. The CME’s departure has highlighted the potential risk of other changes in the market’s infrastructure and firms want to be confident that they have multiple end-points connectivities to reduce longer-term effort and risk.
As clients start the review process, they’re also demonstrating a strong interest in where they can build in new services and other improvements in terms of efficiencies, cost, added value etc. It’s a real opportunity to enhance their processes.
Are there opportunities for improvement as a result of this change?
Clients are definitely taking the opportunity to enhance their processes. Many are reviewing their options with the mindset that they’re looking for better technology or an improved product offering. In particular, we’re seeing a lot of client interest in additional features that are embedded in vendor offerings such as increased automation and improved business insights, all of which support the original intentions that underpin many regulations.
This is also proving to be a good opportunity for firms to enhance their review and monitoring processes. First by reviewing existing processes to ensure they’re collecting the right data and can identify and remove any in-built errors. Longer-term, improved control functions are a feature of many offerings which provide dashboards and analytics to monitor reporting processes.
Will CME’s departure change how clients consider their service providers?
A key shift is that clients are considering the ramifications of future similar changes and are looking for solutions that are future-proofed as much as possible.
Firms are also looking for assurance that their vendor is financially stable and has intentions to stay in the reporting sector for the long term.
What is the impact of CME’s decision on firms who were about to start SFTR?
The CME Group is supporting SFTR reporting until their November exit date. Beyond that time, firms will need to report directly to their TR or find a replacement vendor to provide data conversion and SFTR submission services.
The CME announcement was a shock for much of the market and it was quickly clear that it would be very important to ensure that ongoing regulatory processes will need to continue uninterrupted. A seamless transfer is therefore absolutely central to firms’ considerations.
Of course, the need to take on a new regulatory process, including onboarding with a new vendor and/or trade repository (TR)/approved reporting mechanism (ARM) also adds a burden to firms at an already difficult time. Limited resources and budgets, along with time constraints, are all adding pressure to firms as they consider their options.
For vendors and other TRs and ARMs, there will be the need to prepare to handle the additional volumes as a result of this migration. This is particularly true under the European Markets Infrastructure Regulation (EMIR) which requires full history porting from the CME to the new TR.
What is likely to be the biggest impact of CME’s departure?
Inevitably, pricing is likely to change following CME’s departure. CME has historically been the most competitive on pricing, so the average price of trade reporting will immediately increase. Necessary ongoing investment is also likely to impact price and the CME’s departure strongly suggests that the lower price was unsustainable. Costs are impacted by the huge volume of data involved in reporting, the need for quality technology and services and the cost of complying with evolving regulatory requirements. Having said that, vendor pricing will remain lower than the total cost of ownership for a firm developing its own solution and vendor solutions will benefit from being able to share the build cost among clients while simultaneously ensuring a better product, partly as a result of collaboration.
If price becomes the key factor, service is likely to be negatively impacted as firms reduce investment to meet lower cost demands. However, we are optimistic that if a fair market price can be established, clients will focus decision-making based on the quality of service and products on offer, driving the development of high-quality service and the introduction of improved products that meet client requirements.
Are clients likely to continue to use vendors or shift to working directly with TRs and ARMs?
Many firms like the idea of shifting directly to TRs but there are challenges around the technology required and the potential effort involved when new technology becomes standard or regulatory changes take place. Implementing this in-house is often difficult and expensive. Two months since the CME announcement, we’re seeing a lot of clients settle on the idea of continuing to use a vendor, but doing so with very clear requirements and long-term key performance indicators to help them manage change over time.
What are clients most focused on as they look to review their processes and service providers?
Data transformation and porting is probably the single most important consideration in the first instance. Data porting is, technically, one that needs to be dealt with between the CME and the new TR but the sheer volume of back data may cause problems if not done sufficiently in advance.
When submitting data to a new TR/ ARM or vendor, clients want to be able to provide the same raw file they were sending previously, requiring less work to adapt to a new provider and making it more likely that they can meet the deadline.
Clients are also very interested in ensuring that their vendors are ARM/TR agnostic. The CME’s departure has highlighted the potential risk of other changes in the market’s infrastructure and firms want to be confident that they have multiple end-points connectivities to reduce longer-term effort and risk.
As clients start the review process, they’re also demonstrating a strong interest in where they can build in new services and other improvements in terms of efficiencies, cost, added value etc. It’s a real opportunity to enhance their processes.
Are there opportunities for improvement as a result of this change?
Clients are definitely taking the opportunity to enhance their processes. Many are reviewing their options with the mindset that they’re looking for better technology or an improved product offering. In particular, we’re seeing a lot of client interest in additional features that are embedded in vendor offerings such as increased automation and improved business insights, all of which support the original intentions that underpin many regulations.
This is also proving to be a good opportunity for firms to enhance their review and monitoring processes. First by reviewing existing processes to ensure they’re collecting the right data and can identify and remove any in-built errors. Longer-term, improved control functions are a feature of many offerings which provide dashboards and analytics to monitor reporting processes.
Will CME’s departure change how clients consider their service providers?
A key shift is that clients are considering the ramifications of future similar changes and are looking for solutions that are future-proofed as much as possible.
Firms are also looking for assurance that their vendor is financially stable and has intentions to stay in the reporting sector for the long term.
What is the impact of CME’s decision on firms who were about to start SFTR?
The CME Group is supporting SFTR reporting until their November exit date. Beyond that time, firms will need to report directly to their TR or find a replacement vendor to provide data conversion and SFTR submission services.
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