UnaVista brought about a big change in the way it operates with the closing of its SFTR repository service. The July announcement allows clients six months to migrate to another platform before the new SFTR reporting rules come into effect
UnaVista, the regulatory reporting platform owned by the London Stock Exchange Group, announced it will close its Securities Financing Transactions Regulation (SFTR) trade repository service. UnaVista Ltd, operating in the UK, and UnaVista TRADEcho B.V., in the European Union, will cease to offer regulatory reporting and associated services from its rules engine on 31 January 2022.
The firm says that the move will allow it to relocate its resources to better support its core Markets in Financial Instruments Regulation (MiFIR), European Market Infrastructure Regulation (EMIR) and G20 services, as well as to conduct preparatory work for the EMIR refit.
The SFTR mandates reporting of all securities finance transactions (SFT) to trade repositories (TR) in order to maintain transparency in the market and, as of the new year, it will welcome new SFTR Validation Rules and XML Schemas.
Speaking to SFT, Tom Wieczorek, head of product management at UnaVista, says: “When we originally entered SFTR reporting, we were hoping for a much larger market share than we ended up with. We just didn’t think it was commercially viable for us and regulators expect regulated entities to be running at a certain level of profitability. This would have involved us passing on increased costs to customers, so we felt it best to enable a smooth transition for them through an orderly exit.”
According to Wieczorek, there is a lot more overhead in running a regulated service, as opposed to being a technology provider in the regulation technology space. Firms will need to prove that they have all of the security risk, business compliance oversight policies, procedures and processes in place, alongside reporting obligations and transparency.
John Kernan, CEO and head of product management and business development at Regis-TR, responds to UnaVista’s decision to close its SFTR trade repository service. He says: “We’re sympathetic to UnaVista’s predicament. When SFTR was launching, market participants themselves found it difficult to predict their own reporting volumes. So, when you’re launching something like this, inevitably there is an element of educated guesswork.
“For SFTR, the whole market seems to have anticipated much greater reporting volumes than actually transpired. This might require pricing recalibration in the medium term to remain cost-related, as required under the terms of the TR licence.”
The impact
As the news broke of UnaVista’s decision to close its SFTR service, clients were needing to hunt for a new home before the six month deadline ended. It is now down to UnaVista to aid service users in their search for a new platform before the new SFTR regulations are enforced.
Wieczorek says UnaVista has a documentation pack, including polling materials, that is being shared with clients and it is also holding regularly scheduled working groups to announce updates and answer questions.
He adds: “The vast majority of the firms use us for other reporting services, so we want to make it as easy as possible for them to find a new service to meet their SFTR requirements. We are working with other trade repositories to collate information and provide this to clients and to make sure that they have all the information they need to make the best choice.”
Other firms, including the Depository trust and Clearing Corporation (DTCC) have been in talks with UnaVista clients, offering them alternative services amid the change.
A spokesperson for DTCC says: “DTCC’s Global Trade Repository (GTR) service continues to support new and existing clients with their trade reporting needs, including ongoing support for SFTR. We are working closely with UnaVista to ensure a smooth transition for those firms who opt to leverage DTCC’s EU or UK repository for their SFTR reporting needs. DTCC operates the largest trade repository for SFTR reporting, processing over 115 million messages a month for over 800 clients.”
The Central Securities Depository of Poland (KDPW) has also been aiding UnaVista clients with the transition. Speaking to SFT, KDPW’s CEO Maciej Trybuchowski says: “Given our solid operational relations with the UnaVista trade repository, we can together complete the migration of prospective clients and provide all the necessary support to existing UnaVista clients reporting under EU SFTR.
“We not only ensure successful porting, which is a one-time operation, but we also support on-boarding and reporting, which is a continuous process subject to change in view of regulatory requirements.”
As clients begin to find their way, they may discover that they do not have many places to turn. Ronen Kertis, head of global regulatory reporting solutions at IHS Markit, says there are fewer trade repositories supporting SFTR as it is a smaller regime in terms of the number of firms required to comply with it. The industry could see a trend of firms looking to outsource their reporting.
Kertis says: “With UnaVista exiting the space, there are only three TRs left (DTCC, Regis and KDPW). Of those, only DTCC is a regulated TR in the UK for SFTR reporting and, thus, those firms that are regulated in the UK have only one option to choose from.” He believes there is potential for further consolidation, but cannot see any real signs or move towards that currently.
IHS Markit offers global regulatory reporting solutions and indicates that it currently services hundreds of firms. This scale, it says, provides advantages when building and investing in a product over an individual firm that is building the product internally.
Kertis adds: “Specifically, for SFTR, our clients benefit from the platform for this regime, with many using our SFTR insights platform to gain insights derived from their SFTR data. For our clients who report to UnaVista, we will transition these clients seamlessly to a new TR of their choice at no additional cost.”
Reflecting on the likelihood that the market will see a rise in outsourcing of regulatory reporting, Clearstream’s Kernan says: “You might already be systemically embedded with one of these intermediaries, because you’re using a trading platform or reconciliation platform, so they already have a significant amount of your data that you yourselves need to submit to the trade repository.
“If a client chooses to use an intermediary, then it helps to insulate them against further incremental changes to the reporting framework because the intermediary can help mitigate those changes and the cost of development.”
However, Kernan emphasises that market participants will legally be liable for the data that is submitted to the TR, and then to the regulators, regardless of whether this is outsourced. “Even if the reporting is outsourced, the firm still needs to demonstrate to the regulator that they have a robust oversight process in place,” says Kernan.
On the horizon
Given the economic challenges of running an SFTR repository service, SFT explored with UnaVista the possibility that other firms may follow suit and close their services. Wieczorek predicts possible changes on the horizon. “My personal opinion is that SFTR will be steady until the next significant change,” he says. “That could be a radical change to the regulation, or perhaps a technological change that could disrupt the industry, and the market will have to respond and catch up.”
According to KDPW’s Trybuchowski, two principal changes on the TR scene have affected competition in the market — with UnaVista’s decision only enhancing this. He says: “One was Brexit and the decision of ICE TR to pull out from the EU market. The other involves the decisions of some TRs to phase out a particular service, including CME’s EMIR reporting service and, more recently, UnaVista’s SFTR reporting service.”
Despite limiting the SFTR TR pool, UnaVista’s decision has opened up space for stronger competition and, potentially, higher quality services. The price list for TRs has changed dramatically and similar developments are expected to take place now UnaVista has terminated its SFTR reporting service, says Trybuchowski.
He adds: “We expect that UnaVista’s decision will not cause the regulator to change the terms and conditions of TR services. The potential creation of a single EU trade repository has been raised in public debate.
“In our opinion, to concentrate a service within a single global provider would hinder supervision in the absence of other alternatives while substantially inflating the cost paid by reporting entities. A monopoly provider could charge high fees hardly affordable to smaller firms or entities in less affluent EU regions.”
The recent move by UnaVista to close its SFTR TR service aligns with the wider trend seen, in terms of consolidation, in the European Union TR landscape, says Clearstream’s Kernan.
He adds: “Over the last few years, we’ve seen Bloomberg acquire a TR licence, and then they ceased to operate with the licence. We saw NEX Abide being acquired by CME and then, subsequently, we’ve seen CME and NEX Abide close that business.
“The TR business is a scale business, I think particularly with SFTR the reporting volumes that TRs are receiving are considerably lower than anyone anticipated. It makes it very difficult, on one hand, to be cost related, but at the same time have a fee tariff that is still viable and competitive to the market participants.”
