Everything you need to know about CME’s closure of NEX Regulatory Reporting
18 May 2020 London
Image: DanielJ.Macy/Shutterstock.com
The closure of NEX Regulatory Reporting (NRR) and Abide services will have a “far-reaching impact on the regulatory reporting community and industry at large,” warns Cappitech CEO Ronen Kertis.
On 15 May, CME informed its clients that it would be winding down most of its regulatory reporting services by 30 November, including NRR and CME’s European and Australian trade repositories (TR).
NEX’s Abide regulatory reporting and TR product suite is also set to close its doors at the same time.
SLT understands that CME has spent at least the past six months unsuccessfully attempting to sell the businesses before it decided to begin the termination process.
CME declined to comment on the attempt to sell the businesses but a spokesperson notes that the decision to wind down was made “following an evaluation of our business portfolio after the acquisition of NEX Group in November 2018 which determined it no longer aligns with the strategic direction of CME Group”.
Regarding the members of staff working across these businesses, the spokesperson explains that a consultation process with impacted employees is “ongoing” as there are roles at risk of redundancy.
The exact number of jobs at risk is not currently known.
The announcement on Friday may come as a surprise to some clients as SLT further understands that NRR was still onboarding new users of its Securities Financing Transactions Regulation (SFTR) reporting services until “very recently”, according to a source with understanding of the matter.
As part of its effort to ensure a “smooth transition” of its clients using these services, including those recently onboarded, CME says it “expects to continue to process SFTR records through the wind-down period but there will be no further development on SFTR”.
As a result, CME is encouraging its clients to “find alternative solutions as soon as possible”.
CME further confirms it will not be charging for SFTR services and will assist firms where it can with their transition to another provider.
Phase one of SFTR went live in April but its reporting requirements for those in-scope do not kick in until July as part of phase two. Therefore, any firms expecting to fulfil their reporting obligations via NEX’s solution will now have to scramble to align themselves with a new service provider with only a few weeks to go.
In response to last Friday’s announcement, Cappitech's Kertis says the closure will have left the market and CME’s clients with “real concerns regarding consistency of trade reporting and their ability to transfer to a new TR/approved reporting mechanism (ARM) with as little impact on their individual businesses as possible".
He adds that “in the current COVID-19 environment, and with a relatively short timeline to find alternative providers, this is potentially even more challenging, particularly as regulators are likely to expect dependable and high-quality trade reporting to continue throughout”.
Those now forced to find a new TR/ARM face the “daunting task” of porting data correctly without opening themselves to potential reporting faults and fines, Kertis explains.
“The trade reporting industry will miss CME in Europe where they have long been an important part of the market,” he notes. “Their commitment to working with vendors, clients and other TRs to smooth the transition will be an important part of this process, facilitated by existing partnerships and relationships.”
In terms of CME’s outgoing TRs, its European TR was licenced under the European Market Infrastructure Regulation but not the Securities Financing Transactions Regulation, having withdrawn its application in 2019.
Under EMIR’s rules, CME clients will need to port all positions, not just open ones, to the new TR. This challenge will be made more complex still with EMIR Refit due this Summer.
On 15 May, CME informed its clients that it would be winding down most of its regulatory reporting services by 30 November, including NRR and CME’s European and Australian trade repositories (TR).
NEX’s Abide regulatory reporting and TR product suite is also set to close its doors at the same time.
SLT understands that CME has spent at least the past six months unsuccessfully attempting to sell the businesses before it decided to begin the termination process.
CME declined to comment on the attempt to sell the businesses but a spokesperson notes that the decision to wind down was made “following an evaluation of our business portfolio after the acquisition of NEX Group in November 2018 which determined it no longer aligns with the strategic direction of CME Group”.
Regarding the members of staff working across these businesses, the spokesperson explains that a consultation process with impacted employees is “ongoing” as there are roles at risk of redundancy.
The exact number of jobs at risk is not currently known.
The announcement on Friday may come as a surprise to some clients as SLT further understands that NRR was still onboarding new users of its Securities Financing Transactions Regulation (SFTR) reporting services until “very recently”, according to a source with understanding of the matter.
As part of its effort to ensure a “smooth transition” of its clients using these services, including those recently onboarded, CME says it “expects to continue to process SFTR records through the wind-down period but there will be no further development on SFTR”.
As a result, CME is encouraging its clients to “find alternative solutions as soon as possible”.
CME further confirms it will not be charging for SFTR services and will assist firms where it can with their transition to another provider.
Phase one of SFTR went live in April but its reporting requirements for those in-scope do not kick in until July as part of phase two. Therefore, any firms expecting to fulfil their reporting obligations via NEX’s solution will now have to scramble to align themselves with a new service provider with only a few weeks to go.
In response to last Friday’s announcement, Cappitech's Kertis says the closure will have left the market and CME’s clients with “real concerns regarding consistency of trade reporting and their ability to transfer to a new TR/approved reporting mechanism (ARM) with as little impact on their individual businesses as possible".
He adds that “in the current COVID-19 environment, and with a relatively short timeline to find alternative providers, this is potentially even more challenging, particularly as regulators are likely to expect dependable and high-quality trade reporting to continue throughout”.
Those now forced to find a new TR/ARM face the “daunting task” of porting data correctly without opening themselves to potential reporting faults and fines, Kertis explains.
“The trade reporting industry will miss CME in Europe where they have long been an important part of the market,” he notes. “Their commitment to working with vendors, clients and other TRs to smooth the transition will be an important part of this process, facilitated by existing partnerships and relationships.”
In terms of CME’s outgoing TRs, its European TR was licenced under the European Market Infrastructure Regulation but not the Securities Financing Transactions Regulation, having withdrawn its application in 2019.
Under EMIR’s rules, CME clients will need to port all positions, not just open ones, to the new TR. This challenge will be made more complex still with EMIR Refit due this Summer.
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