The announcement this week that the London Stock Exchange (LSE) is in the process of acquiring the UK Financial Services Authority’s (FSA) approved reporting mechanism (ARM) is likely to be the first but not the last acquisition that the exchange operator will be making in the post-trade space this year, if CEO Xavier Rolet’s ambitions are anything to go by. But, in the meantime, the LSE has agreed to pay £15 million for the regulator’s Transaction Reporting System (TRS), clients of which will now be granted access to the full suite of UnaVista services, Mark Husler, head of information services business development at the exchange operator, explains to Reference Data Review.
The TRS is an ARM established in the UK market for the reporting of transactions in regulated instruments by firms to the FSA in accordance with SUP 17 of the FSA Handbook and the Market in Financial Instruments Directive (MiFID). Up until now, clients using the TRS service have therefore been using it solely for transaction reporting purposes. However, the LSE’s UnaVista platform, onto which its transaction reporting solution was moved in May last year, aims to offer much more than these reporting functions.
Husler explains: “UnaVista is more than just a transaction reporting platform and it is now live providing a range of different business solutions including reconciliation through to trade confirmations. We launched a swaps solution, which allows hedge funds, executing brokers and prime brokers to communicate post-trade messages for OTC swaps. There is lot going on in terms of developing the platform, as well as it continuing to act as our global reference data solution, the Sedol Masterfile. With more than 1,500 firms using UnaVista internationally for this purpose it remains at the heart of the Sedol system.”
LSE indicates that the new customers that will be coming onto the UnaVista platform as a result of the TRS acquisition will not just get transaction reporting functionality, it will offer them a lot more business benefits. They will therefore get access to the full range of solutions that sit on the platform, including the confirmations portal and the swaps portal, which were both launched back in October last year.
“We’re working together with the FSA to communicate to all TRS customers that will be brought onto the platform as a result of the acquisition and the number is in the 100s,” explains Husler of the universe of new clients from the acquisition. “They are buy side and sell side firms, with the majority being brokers because MiFID obligations for transaction reporting are targeted towards these firms. However, we have seen an increasing number of buy side firms are electing to begin transaction reporting their own business directly.”
He notes that the diversity of the TRS client base is interesting and it includes a mixture of very large tier one investment houses, mid-tier brokers, retail brokers, hedge funds and investment managers. In the short term, the focus will be on communicating the business as usual message to these clients, according to Husler. “This week is all about communication and reassuring these customers that UnaVista will continue to receive the data they are producing for transaction reporting in exactly the same FSA format. There will be no technical changes required for any of these customers. They can deliver the same data in the same formats and via the same communication channels they have been using with the FSA,” he elaborates.
LSE will also be adding in the “good news” that once these clients have redirected those communications to the exchange operator and their data has been delivered, they will have access to a “significantly enhanced product.” The UnaVista transaction reporting solution aims to provide a solution for all asset types, including a reference data feed to help customers prepare for the new Alternative Instrument Identifier (AII) code for reporting exchange traded derivatives, which the FSA is mandating in November 2011.
The launch of the FSA’s AII system has been beset by difficulties over the last couple of years and has therefore been several times delayed. It has seemingly struggled to get its current surveillance system up to scratch in order to be able to process transaction reports for AII transactions, but earlier this year confirmed that 13 November would be the deadline for implementation.
On the LSE’s own AII offering, Husler says: “As part of our service for this we are partnering with FOW, a data supplier for derivatives, and we will be supplying all of our existing and new customers with a global reference data feed of derivatives cross mapped to ISIN, Sedol and the new AII codes. There is a lot of interest from customers about how they can prepare their systems for November and the good news is that we are partnering with the main data supplier in this space to provide a new Sedol feed for 85 global markets cross referenced to AII for this. We have full approval to act as a reporting mechanism for all asset classes, that is equities, OTC derivatives, fixed income and about a month ago we received the approval for AII.”
In addition to providing all the functionality required of an FSA ARM, Husler explains that UnaVista also helps customers to validate their reference data and provide visibility of exceptions via management dashboards and reconciliation tools to reduce compliance risks. “An area that customers find very useful is UnaVista’s ability to monitor what is MiFID eligible and reconcile that against what customers are reporting to send alerts within the 48 hours window of reporting to make customers aware of potential under reporting risks that may need to be investigated,” he says.
Around this time last year, LSE extended its transaction reporting and reference data checking services to the Dutch market, following the approval of the regulator in the Netherlands, the Autoriteit Financiële Markten (AFM), to act as an approved reporting mechanism (ARM) in the country. At that point, Husler noted that the exchange operator was keen to extend further into Europe and possibly North America and Asia in the future with the transaction reporting service. On this note, he explains: “In terms of transaction reporting, we have an ongoing process of gaining approval in other jurisdictions, for example this year we are looking at France, Germany and possibly Spain. Client demand is driving the process of selecting where we build links.”
As for future acquisitions, Husler indicates that there are absolutely other vendor services out there that would fit with the UnaVista platform. “Our CEO Xavier Rolet has been very open about the fact that as well as organic growth, we also look to acquisition opportunities where they might fit in with our business,” he says. Watch this space…