The SmartStream Reference Data Utility (RDU) is building momentum in capital markets, helping users drive down costs and preparing to add equity and fixed income reference data services to the listed derivatives solution it already provides.
To find out more about the utility’s plans, solutions and users, we caught up with CEO Peter Moss, who joined the company in August 2016, about a year after it was established by SmartStream and leading banks Goldman Sachs, JPMorgan Chase & Co and Morgan Stanley. His mission was to give the business direction, build repeatable products and create a robust and resilient organisation.
Moss explains: “The risk of a start-up is that it delivers consultancy type projects rather than repeatable solutions, a utility has to provide repeatable products. The company’s first year focussed on satisfying the shareholder banks, the second on making everyone aware of the utility and building out our product line, and this year, the third year, is about actively selling the managed reference data service we created for the founding banks and our MiFID II products.”
The banks work closely with the RDU, providing expertise and development help, and were all live on the utility by the end of 2017. Following initial plans and solving one of the banks’ biggest problems, the utility provides listed derivatives reference data, a dataset that Moss describes as ‘second to none’. Moving forward, the company is building an equities reference data solution that is due to come to market in the third quarter of this year and a fixed income solution that is expected to be available in 2019.
Moss says: “The goal is to provide a full security master, so we need to add equities and fixed income as part of that. Equities is first as they are more closely aligned with listed derivatives.” While the RDU had to do most of the leg work to build a listed derivatives dataset as data vendors don’t make adequate provision in this space, the utility is able to lean harder on vendors to develop equity and fixed income datasets.
The extension of asset classes covered by the SmartStream RDU should attract additional users, although numbers are already rising in great part as a result of the company’s Markets in Financial Instruments Directive II (MiFID II) service, which was released on the weekend of New Year’s Eve after a working Christmas in the office. Moss says: “MiFID II is very dependent on instrument reference data, which is exactly what we provide. We make the data as available and easy to use as possible.”
Customers signed up as the service was released and more are following, many of which got to the MiFID II starting line, but are not necessarily comfortable with what they built. Moss comments: “We are having conversations and expect more contracts this year as banks begin to automate what they built for MiFID II. These banks tend to be Tier 2 and 3 and may be systematic internalisers at some point, but they didn’t throw money at MiFID II in the same way as Tier 1 banks.”
The company has since released a second MiFID II solution, a centralised Systematic Internaliser (SI) Registry developed in collaboration with a group of Approved Publication Arrangements (APAs) responsible for trade data collecting and reporting under MiFID II. The registry is operated by SmartStream RDU and allows SIs to register financial instruments for which they are providing SI services in the registry through their APA. The RDU will then make the data available to the market. This is important as industry participants must identify whether trading counterparties are SIs for the financial instruments they are trading so that they can determine which counterparty must report the trade. To date, more than 50 SIs are on the SI Registry and more are joining every day.
These MiFID II solutions as well as the RDU’s overarching reference data services are driving momentum at the company, which has towards 20 customers and is working towards break even. The addition of equity and fixed income data will open up a larger customer set including not only sell-side firms that are already serviced, but also buy-side firms.
The USP of the RDU is its ability to help customers reduce the costs of managing data. It also fills a resource gap at firms struggling to hire and retain staff to source, cleanse, normalise and automate reference data. And there is more. Moss says: “The benefits add up. We can provide better data quality than customers previously had to drive their automated processes and dramatically reduce exception management. Fewer exceptions is a key measure of success, with a recently onboarded client reducing its trade processing exceptions by 75%.”
The company’s credibility is based, in great part, on the fact that it is an industry initiative. In Moss, it has a highly experienced and respected CEO who came out of retirement from Thomson Reuters in 2015 after a 24-year career at the company that culminated in the role of managing director of a $6 billion global financial services business. On his leadership of the SmartStream RDU, Moss concludes: “I will stay at least until the company breaks even and is on a path to good profitability.”