Europe Gets Tough on ‘Research’ Unbundling

SYSTEMATIC INTERNALIZER RANKS SWELL, PRE-MIFID II

Aussie Regulator Modernizes Statistics Data Collection

THE TWISTS AND TURNS OF SECURE MESSAGING

Will Bloomberg’s Cut-Price Chat Tool Stave Off or Sink Symphony?

waterstechnology.com November 2017 smartstreamrdu.com Simplifying Reference Data. Together.

Established as an industry utility based on the principle of market commonality, collaboration and contribution, The SmartStream Reference Data Utility (RDU) delivers a cost efficient approach to realize the truth of the data contained within the industry with guaranteed results. Managing data holistically across legal entity, instrument and corporate action data, this shared service model promotes fixes to data processing across the instrument lifecycle and the events that originate and change data. Join the revolution, contact us today: [email protected] Editor Max Bowie Tel: +1 646 490 3966 [email protected] Deputy Editor Jamie Hyman Tel: +44 (0) 207 316 9270 [email protected] European Reporter Joanne Faulkner Tel: +44 (0) 20 7316 9338 [email protected] Asia Staff Reporter Wei-Shen Wong Tel: +852 3411 4758 [email protected]

Publisher Katie Palisoul Tel: +44 (0)20 7316 9782 [email protected] Global Commercial Director Colin Minnihan Tel: +1 646 755 7253 [email protected] Business Development Executive Arnaud Morell-Coll Tel: +1 646 736 1887 [email protected] Business Development Executive Tom Riley Tel: +44 (0) 20 7316 9780 The Risks of Over-Optimism, [email protected] Group Publishing Director Lee Hartt From Mifi d to Messsaging Head of Editorial Operations Elina Patler Subeditor Brett Gamston Commercial Editorial Manager Stuart Willes a disclaimer: Nothing here should be construed as a Senior Marketing Executive Louise Sheppey Tel: +44 (0) 20 7316 9476 To begin, recommendation to buy our magazine, lest regulators [email protected] tell me to unbundle it and give it away for free—as with anything deemed broker research InfoPro Digital under Mifi d II, causing some banks to add disclaimers to research-like notes emphasiz- 55 Broad Street 22nd Floor ing that they are not, in fact, research, no matter how closely they resemble it. Think that’s New York, NY 10004, USA Tel: +1 646 736 1888 a stretch? So do several domestic regulators, who are warning banks not to assume that these types of broker content won’t be subject to the same rules, reports Risk.net’s Chris InfoPro Digital Haymarket House, 28–29 Haymarket Davis. Basically, if it walks like research and quacks like research… well, you get the idea. London SW1Y 4RX, United Kingdom Tel: +44 (0)20 7316 9000 However, in reality, “you get the idea” isn’t good enough guidance—especially when dealing with the complexities of new regulatory frameworks. For instance, there is still a InfoPro Digital 14th Floor (Unit 1401-3), Devon House, Taikoo Place huge lack of clarity around rules governing systematic internalizers under Mifi d II, market 979 King’s Road Quarry Bay, Hong Kong Tel: +852 3411 4888 participants tell Jamie Hyman, especially around trade reporting obligations. If it seems like we write about regulation all the time, that’s hardly surprising. Not only Subscription Sales UK: Claudio de Oliveira are regulators worldwide undergoing massive reform; each individual initiative encom- Tel: +44 (0)20 7316 9271 passes a multitude of nuances, and complying with each new regulatory framework is [email protected] US: Kemuel Ramos a mammoth undertaking involving many different aspects of compliance with lengthy Tel: +1 646 736 1839 [email protected] checklists of new rules—some of which are well-known, while other less prominent com- ponents may take a back seat until those subject to the rules get around to deciphering InfoPro Digital Customer Services E-mail: [email protected] their implications and often push back against well-intentioned but now-unreasonable Tel (UK): +44 (0)1858 438800 Tel (US): +1 212 776 8075 timeframes. For example, the Australian Prudential Regulatory Authority has delayed the Tel (Asia): +852 3411 4828 implementation of an initiative to overhaul how it collects fi nancial and economic statistics from banks after industry feedback that its timeframes were too aggressive. Arguably also guilty of starting out with overly aggressive ambitions—or perhaps of not correcting overly ambitious assumptions that others attributed to it—is Symphony Communication Services. Initially envisaged by its backers as a tool to displace (or per- haps just bully) Bloomberg, the challenge of gaining traction—even for an initiative so widely backed by big industry players—and functionality to serve as a viable inter-fi rm messaging platform (let alone, as a data platform) to rival even part of the Bloomberg To receive Inside Inside Data Data Management Management empire has left some initial supporters disillusioned. All this as Bloomberg releases its magazine everyevery month month you you must must subscribe to to Buy-Side Inside Market Technology Data cut-price, unbundled IB Chat service—perhaps its fi rst defensive salvo, or perhaps the online, Sell-SideInside Reference Technology Data online online or fi rst nail in Symphony’s coffi n? That said, those in it for the long haul may live to see orone one of ourof our multi-brand multi-brand subscription subscription Symphony become the fi nancial “cloud” that content providers other than Bloomberg options. ForFor more more information information and subscriptionsubscription details, details, visit visit view as their best channel to market—a consolidated “community” of content and tools. waterstechnology.com/subscribe But until then, Bloomberg still has the upper hand. „ Max Bowie Inside Data Management (ISSN 2514-0574) is published Editor monthly (12 times a year) by Infopro Digital Risk Limited. Printed in the UK by DG3.

Published by Infopro Digital Risk Limited. Copyright Infopro Digital Risk Limited (IP), 2017. All rights reserved. No part of this publication may be reproduced, stored in or introduced into any retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the copyright owners.

waterstechnology.com November 2017 1 1 Editor’s Letter 14 4 News Bloomberg’s Chat Gambit: The Feint 8 New Perspectives Before a Knockout? 14 Bloomberg’s Chat Gambit: The Feint By Joanne Faulkner Before a Knockout? Is Bloomberg’s decision to introduce a cut-price version of its Instant Bloomberg messaging a sign that the data giant is rattled by Symphony? Does the move refl ect genuine concern by Bloomberg, or is it simply how the vendor is adapting to the broader evolution of the messaging space? By Joanne Faulkner 18 EU Gets Tough on ‘Research’ Unbundling Mifi d II will force sell-side fi rms to unbundle research fees from dealing commissions they charge to buy-side clients. The banks claim their front-offi ce notes meet the criteria of being a minor non-monetary benefi t, but EU watchdogs aren’t convinced. By Samuel Wilkes 18 22 EU Gets Tough Out with the Old: on ‘Research’ Australia’s APRA Unbundling Takes Aim at EFS Data By Samuel Wilkes By Wei-Shen Wong

2 November 2017 waterstechnology.com November 2017

22 Out with the Old: Australia’s APRA Takes Aim at EFS Data 26 Systematic Internalizer The Australian Prudential Regulation Ranks Swell Ahead of Authority is overhauling its core regulatory Mifi d II reporting requirements, which includes By Jamie Hyman the modernization of the Economic and Financial Statistics data submissions required from Australian banks and various other fi nancial institutions. Wei- Shen Wong reports on the challenges created by the reviewed submissions. 26 Systematic Internalizer Ranks Swell Ahead of Mifi d II While buy- and sell-side fi rms grapple with the reporting obligations imposed on systematic internalizers under Mifi d II, the number of registered SIs keeps growing. Jamie Hyman looks at why more fi rms are 30 opting in to the designation ahead of the Will Eonia Sink regulation’s January 3 deadline. or Swim in Hunt 30 Will Eonia Sink or Swim in Hunt for for Euribor Replacement? Euribor Replacement? By Chris Davis The European Central Bank has intervened to rescue stalling benchmark reform and fi nd a new risk-free rate for swaps. But a key contender, a strengthened Eonia, has suffered from dwindling transaction volumes in recent years, and the ECB’s new overnight rate is widely regarded as the top contender. But it may take a long time for market participants to develop confi dence in a new reference rate. By Chris Davis 34 Human Capital

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waterstechnology.com November 2017 3 News

MT Newswires Expands Canadian News Services Bethesda, MD-based news provider MT micro-cap or Pink Canadian exchange-traded funds. “We do Newswires has rolled out a Canada-focused Sheet stocks,” he quite a lot of ETF coverage in the US, and we news feed to enhance its coverage of Cana- says. “Based on that are expanding our Canadian ETF coverage dian companies listed on the TMX-operated appetite, we tried to in response to demand… from the invest- TSX Venture Exchange. figure out how we ment community, and because we have Dubbed the Venture 50 Wire, the service could serve that been contacted by ETF issuers and asset is designed to reflect the TSX Venture 50 need. We already managers wanting additional information ranking of 50 top-performing stocks across covered venture- that they can provide to their clients,” he five industry sectors, which change every listed companies, says. year based on performance. The new service Brooks McFeely, but we wanted to do The ETF news will provide breaking news MT Newswires aims to provide a greater focus on these more around some on developments in the Canadian ETF stocks by ensuring it covers news about the of those most liquid stocks.” market throughout the day, as well as pre- companies, as well as by providing “spot- In addition to the five sectors covered by market, intraday and closing reports, includ- light” articles featuring in-depth profiles of the TSX Venture 50, MT Newswires has also ing a “Power Play” feature that highlights individual companies and their challenges. stepped up its news coverage of the emerg- significant and unusual price movements, MT Newswires CEO Brooks McFeely ing cannabis sector in Canada. and summaries of market activity in all the says the vendor developed the service in “Most cannabis companies tend to be main sectors covered. response to client demand. smaller… but there is a lot going on from a “We’ve built the specifications for what “There is increasing appetite for informa- regulatory perspective that’s driving these the coverage will look like. We have to do tion on venture-listed companies in Canada, shares, and it’s a hot sector from an investor some work on our classification system to where trading smaller stocks is more perspective,” McFeely says. recognize news relating to Canadian ETFs, common, compared to the US, where… Also in response to client demand, the and we have to hire a new team to write major firms don’t really encourage trading of vendor is expanding its news coverage of Canadian news,” McFeely says.

GDPR Contract Compliance Refreshed FIBO Adds Could Cost Firms £800M Semantic Web Standards

Axiom, a legal, contracts and compliance tech solu- The Enterprise Data Management (EDM) Council is adding Semantic tions provider, predicts global firms still have millions Web standards to the Financial Industry Business Ontology (FIBO), of contracts that need to be identified and remedi- an initiative to develop a common language for the financial industry. ated by the General Data Protection Regulation The EDM Council, in partnership with Object Management (GDPR) deadline in May 2018, at an estimated cost Group, began developing FIBO in 2015. The latest development of £800 million ($1 billion). incorporates Semantic Web standards, including the ability to Axiom contacted over 100 major financial firms generate unified modelling language diagrams, simple knowledge GDPR aims to unify data protection about their GDPR readiness and found the vast organization systems vocabulary, enhanced spreadsheets for busi- across the EU majority had not begun to calculate the scope of ness review, and machine-readable files in the W3C standard Web their contract remediation work. Less than 5 percent Ontology Language. knew how many contracts would need to be addressed to comply. David Newman, chair of the FIBO initiative and senior vice “GDPR has significant new and updated requirements of contracts president of Wells Fargo’s innovation group, calls the updated FIBO governing the transfer of data; even current contracts with robust data a “major achievement.” protection language will be rendered non-compliant,” says Axiom’s The EDM Council hopes the update will make it easier for the co-head of global banking and regulatory practice, Mathew Keshav Semantic Web community to collaborate with financial application Lewis, in a statement. developers. Dennis Winosky, head of FIBO engineering at the The firm has launched a GDPR-readiness solution that uses artificial Council, says the update makes financial information more search- intelligence technology to analyse contracts combined with workflow able: “HTML [provided] a standard way to find and retrieve web management and scalable legal resourcing, so firms can scope and pages. The Semantic Web is taking the next step by making indus- renegotiate contracts to comply with the regulation. try-specific information just as simple to find and interrogate.”

4 November 2017 waterstechnology.com News

FCA Approves ARMs for Esma Bows Phase Two DTCC to Enhance Global Mifi d II UK regulator the Financial Trade Repository for Conduct Authority (FCA) has Of Reference Database begun issuing offi cial approvals SFTR The Depository Trust & to companies that have applied The European Securities and Markets Clearing Corporation (DTCC) will offer transaction reporting services to act as an Approved Reporting Authority (Esma) is out with phase two Mechanisms (ARMs) to provide in support of the Securities of its Financial Instrument Reference transaction reporting services under Financing Transactions Regulation Database (FIRDS). the Mifi d II regime. Trax, a subsidiary (SFTR). The clearing and of MarketAxess Holdings; London The launch gives market participants settlement utility announced plans Stock Exchange; NEX (Abide) and access to FIRDS, which provides the to enhance its European Global Bloomberg have announced that reference data necessary to identify Trade Repository (GTR), which, Steven Maijoor, according to DTCC, will be a they’ve received FCA approval to Esma instruments in scope of the revised operate as ARMs. All four companies Markets in Financial Instruments Direc- signifi cant addition to their existing reporting capabilities. Andrew have also been authorized to tive (Mifid II) and Market Abuse Regulation. act as an Approved Publication Douglas, CEO of the European “The delegation of these projects by national authori- Arrangement, which are entities GTR and managing director of permitted to publish post-trade ties to Esma also illustrates the desire for a more central- government relations for EMEA/ transparency reports on behalf of ized EU approach and makes Esma a key part of the Asia at DTCC, says the timeline investment fi rms. global financial markets infrastructure,” Esma chair Steven for the new offering depends Maijoor said in his keynote address at the Esma 2017 on the European Commission’s OTCGH’s EOX Expands conference in Paris. announcement of SFTR’s US Implied Volatility Pricing The regulator has also published instructions on how regulatory technical standards. “Once we know when any EOX, the data and pricing arm of to access the data and download machine-readable files. regulation is due to be mandated, energy and commodities broker Specifically, the database assists in compliance with we would work backwards from consortium OTC Global Holdings, Mifid II’s Article 27, which requires trading venues and there with our own development has expanded its implied volatilities systematic internalizers to submit reference data for rele- plan,” he says, adding that the EC coverage of North American power vant financial instruments to national competent authori- is expected to publish standards markets. The expanded service adds during the fi rst quarter of 2018, implied volatility for Ercot (the Electric ties (NCAs), who pass it onto Esma for publication. Esma with implementation falling in early Reliability Council of Texas) North, warns the data released may be incomplete and of limited 2019. He says the enhancement full modeling of—rather than implying quality, and along with the NCAs, it has committed to announcement comes after via algorithms—additional locations, improving the published data’s quality and completeness. discussions with clients and QA enhancements, and expanded The first phase of FIRDS launched in July, when Esma industry associations over the straddles coverage in its end-of-day began collecting financial instrument reference data from past year. spreadsheet report. reporting entities.

LSE and APIR Partner to Issue LEIs in Australia and SE Asia London Stock Exchange Group (LSEG) is with LSEG, APIR can transact with European counterparties, partnering with Australia-based APIR Systems ensure clients can get including funds, SMSFs and traders,” says to issue and maintain Legal Entity Identifiers an LEI and remain Chris Donahue, APIR CEO, in a statement. (LEIs) in Australia and southeast Asia ahead of compliant. the upcoming revised Markets in Financial “In 2015, APIR LEI Defi cit Instruments Directive (Mifid II) deadline. began issuing LEI’s According to LSEG, more than a quarter of APIR will continue to act as a registered and has now evolved a million entities still lack LEIs less than two agent, assisting clients with their LEI that service by months away from January 3, 2018, when requirements, but will now send LEI details to LSE main hall in London partnering with Mifid II comes into force. Firms lacking LEIs LSEG for validation and approval. According London Stock are unable to submit valid transaction to LSEG, the partnership is a response to Exchange to leverage their technical expertise reports, so the European Securities and more complex LEI acquisition requirements, and global scale. Although Mifid II is relatively Markets Authority has stated that firms as information on entities’ parent-child new to Australian entities it does impact a should not trade with counterparties unless hierarchy is now requested, and so by working broad range of financial services firms that they have an LEI.

waterstechnology.com November 2017 5 News

Harris, Toomey-Wilson Launch Data Compliance Consultancy

Data industry veterans Keiren Harris and ers to be compliant. There’s a cost risk, but David Toomey-Wilson have founded Data- there’s also reputational risk: for example, if Compliance LLC, a consultancy focusing on you’re not compliant in one area, [exchanges data license compliance issues and data may think] you might also not be compliant audit defense and resolution, to help firms in others,” which could increase scrutiny on address licensing issues with exchanges a firm and make exchanges more likely to and data vendors. demand audits. The pair set up the company in response Some tier-one firms may already have to what they see as understaffing at financial between 20 and 30 ongoing audits under-

firms around license management and David Toomey-Wilson and Keiren Harris, DataCompliance way at any one time, and are using delaying market data compliance. tactics to stagger them in a managable way, “We think there is more need now for data management, cost and change impact anal- Toomey-Wilson adds. compliance, as a result of the ‘intellectual ysis, audit defense, and analysis of regula- Firms that can demonstrate sound brain drain’ at financial firms,” says Norwalk, tion-driven data sourcing requirements. compliance practices may be able to negoti- Conn.-based DataCompliance CEO Harris and Toomey-Wilson believe it’s ate a stay on further audits for a set period. Toomey-Wilson. “When I came to the US important to change the way firms think But as a result, exchanges that view audits working at MDSL back in the mid-1990s, about compliance to eliminate potential as a revenue line are now increasingly turn- market data was in a bad state. There were areas of non-compliant usage, and to mini- ing their attention to smaller firms and retail no systems or controls. Then people got a mize the costly and time-consuming burden brokers with smaller—or even no—dedi- handle on data… but they have forgotten of responding to market data audits. cated market data management resources, what a beast it is. So many firms may now “Do you want to be managing compli- where contracts typically get signed quicker have tools to manage inventory, but they no ance or managing data as a resource? than at tier-one global banks, and where longer have the specialized skills around Because compliance is just money going those responsible for data may not under- audit defense, for example.” straight out the door, whereas managing stand every nuance of the data contracts DataCompliance provides a range of data as a resource is an investment,” says they sign, and so may not challenge an audit services, including a compliance optimiza- Harris. “It’s more and more important for or any amounts that exchanges claim they tion “healthcheck,” ongoing compliance financial institutions and other data consum- are owed, Harris says.

BNP, Quincy Tap Enyx FPGA ICE Taps ITRS for Real-Time Handlers for Low-Latency Data Monitoring Tools

French bank BNP Paribas will use New York-based hardware feed London-based real-time systems monitoring and management handler vendor Enyx’s nxFeed FPGA feed handlers for high-perfor- technology vendor ITRS is to provide real-time monitoring capabili- mance market access in the Americas, Europe and Asia, as part of a ties for clients of Intercontinental Exchange’s Consolidated Feed. strategic partnership between the bank and vendor. Under the terms of ICE’s Consolidated Feed provides access to data from more the partnership, BNP and Enyx will integrate their hardware accelera- than 450 markets via one normalized real-time datafeed. ITRS’ tion technologies to improve real-time data processing, and Alexandre Geneos monitoring tool measures the timeliness of data from point Benech, global co-head of electronic market-making and commerce at of consumption to point of publication. It alerts users to any BNP, will join the vendor’s board of directors. increases in latency that are outside expected parameters by moni- Meanwhile, low-latency microwave data network provider Quincy toring the real-time feeds, distributed systems and applications that Data is deploying nxFeed to support its Quincy Extreme Data low- provide the data. latency datafeed. “Across any financial services firm there is a huge amount of The news follows Enyx’s rollout of a new underlying platform for information that must be nxFeed, the FPB2 platform, which leverages hardware manufacturer processed by technology waterstechnology.com Xilinx’s Virtex UltraScale+ FPGA to reduce wire-to-wire processing and by people,” says For more information and readers’ latency by more than 30 percent, while more than doubling its symbol Mark Loader, product lead feedback please join the discussion capacity. at ITRS.

6 November 2017 waterstechnology.com News

Mifid II Bites into Thomson Reuters Desktop Revenues

Thomson Reuters’ Q3 results showed a slight Thomson Reuters CFO desktop revenues—mostly made up of the growth but revenues were lower than expected Stephane Bello said the vendor’s flagship Eikon product—fell 4 as a result of customers in Europe stalling on slowdown in Q3 sales was percent. Bello blamed this mainly on regulatory renewing deals amid uncertainty surrounding primarily in Europe and changes the market will face in the coming the run-up to the revised Markets in Financial Asia, stating that the vendor months, specifically Mifid II. Instruments Directive (Mifid II). was not “closing on sales When asked whether this would be During a call with analysts on November 1, reflected in the price increases for Eikon and Thomson Reuters president and CEO Jim Elektron in 2018, Bello said it was “too soon” Smith said that overall revenues for the quarter to say what the increase would be, but said were “lower than expected,” and singled out “The bar has been raised for he expects it will be “very much in line with underperformance in its Financial & Risk what we have done in prior years, which is a division, where revenues rose marginally from Mifid-compliant solutions in the price increase [pretty much] in line with the $1.52 billion in Q3 2016 to $1.54 billion in Q3 market data space.” Jim Smith, inflation rate.” 2017—weaker than expected, despite the Thomson Reuters Although Mifid II may negatively impact division achieving positive net sales. revenues now, Smith said it could also bring Growth during the quarter was driven by a competitive advantages to the vendor. “The 5 percent increase in the Elektron Data opportunities as quickly as expected.” Bello bar has been raised for supplying Mifid- Platform and revenues from risk products, and said that while cancellations across F&R are at compliant solutions in the market data space. a 7 percent increase in transaction revenues. their lowest level since Q1 2016, this was being Everything around the transparency However, these were offset by a 4 percent offset by a higher level of desktop cancellations requirements are going to require more market decline in both desktops and recoveries. from the sell side in those two regions. data and increase the demand [for market Overall revenues for the quarter were up from Desktops currently account for 37 percent data], and they are going to have to be $2.74 billion to $2.79 billion year-over-year. of Thomson Reuters’ revenues, and Q3 presented in a compliant way,” he said.

Metamako, Velocimetrics Ally Smartkarma Raises Funds to for Mifi d II Data Monitoring Grow Platform, Data

Australian low-latency switch vendor Metamako has partnered with Singapore-based Asian investment research and analysis market- systems performance and latency monitoring analytics provider Veloci- place Smartkarma has raised an undisclosed amount of series B metrics to provide capital markets firms with analytics and Mifid- funding led by venture capital firm Sequoia India, bringing the total compliant timestamping data. funding raised to date by the vendor to $21 million. Metamako’s low-latency, FPGA-enabled network devices will The round also included participation from existing vendors provide lossless data capture and nanosecond-precision timestamp- Wavemaker Partners, Jungle Ventures and Spring Seeds. ing, while Velocimetrics’ VMX monitoring software will consume and Smartkarma’s platform connects investment managers with analyze the data. This will allow financial institutions to measure, moni- analysts and research covering more than 2,400 companies across tor and gain insight into their business and trade flows quickly, accu- 15 Asian markets. The vendor says that worldwide, more than 150 rately and flexibly. institutional asset managers, including sovereign wealth funds, Velocimetrics currently provides applications for gaining end-to-end hedge funds and boutiques, subscribe to the platform. visibility into trading data via its VMX EndtoEnd solution. The collabora- Officials say the cash injection will be used to expand Smartkar- tion with Metamako enables capital markets firms to deploy a solution ma’s network of research providers, add more tools and features to that delivers insights “closer to the flow,” or within the actual network, its platform, and develop more services. The additional funding will allowing packets to be accurately timestamped, aggregated and condi- also support Smartkarma’s international expansion. In September, tionally routed to VMX’s high-volume, small form-factor capture and the company opened a UK office to build out its research analyst analytics technologies. community in Europe and support its buy-side investor clientele. The solution also provides a complete audit trail while combining “We are immensely proud of the innovative ways Smartkarma is and rationalizing many components used to build out network-centric reshaping the investment research industry,” says Smartkarma analytics, reducing total cost of ownership. co-founder and chairman Jon Foster, in a statement.

waterstechnology.com November 2017 7 New Perspective

Industry Heavyweights Unveil Startup ‘Data Wrangler’ Crux, Raise $10M Championing the rise of ‘informatics,’ new startup Crux aims to take tedious data processing off fi rms’ plates, freeing them up to focus on adding value. Max Bowie reports on this small company with some big names at the helm.

rux Informatics, a New York- evaluate and procure new content via industry. “We help clients think about based data processing startup an online portal; a managed “data the data they take in like an information Claunched by former Thomson engineering concierge” service that supply chain, and help them implement, Reuters, Google and Bloomberg leverages Crux’s team of data scientists orchestrate and operate those supply executive Philip Brittan with a man- and engineers to clean, normalize and chains. We fi nd data sources, and we agement team including former senior transform raw data from those sources write the scripts to normalize the data NYSE and Goldman Sachs execs, has into “actionable” formats specifi c to and provide it to clients in a format that broken cover and announced a $10 each client; and its informatics plat- makes it as actionable as possible,” he million funding round led by Goldman form—a “secure and scalable” cloud says—especially since Crux’s off ering Sachs Principal Strategic Investments. Philip Brittan environment in which fi rms can ana- initially lends itself more to alternative Brittan says he conceived the initial Crux Informatics lyze that transformed data in diff erent data, and alternative data providers are idea for Crux after leaving Thomson ways, share it with other applications more likely to use third-party distribu- Reuters in December 2015, where he via a suite of APIs, and control who tion channels than large traditional data had served as CTO and global head of can access it via granular entitlements. vendors. platform for the vendor’s Financial & “If you think about everyone from Brittan says he started having intro- Risk division, responsible for product banks, hedge funds, research houses… ductory conversations about fi nancing development across its desktops and to private equity fi rms and insurance with Goldman Sachs Principal Strategic feeds, analytics and data collection and companies, they all fundamentally Investments and other investors earlier distribution platforms. share a core ‘manufacturing process’ of this year to bolster the company’s fi nan- “I had the idea that there was an taking in information about the world, cial resources, which previously were opportunity in the market that was not and coming up with some type of funded by unnamed angel investors. being met. At Bloomberg, Google and insight to support an action, whether “It’s a big lift that we’re undertaking— Thomson Reuters, I was on the supply that is placing a trade, pitching to a we need a good team to do it,” he adds. side of the market. I saw the burden client, or writing a research report, That team already comprises that companies faced in trying to make for example,” Brittan says. “The chal- well-known names from the data and use of data—and nobody was stepping lenge is fi nding data that nobody else technology world, besides Brittan, up to help clients with this,” he says. has—or completely new data. I’ve including Larry Leibowitz and “So late last year, I started getting seri- seen fi rms struggle to fi nd and source Elizabeth Pritchard. ous about it, and spent this year getting data, ingest and validate it, clean it, Leibowitz, who serves on several started, fi nding the right partners, get- and map it to other security identifi ers business and philanthropic boards in ting people involved, talking to clients, they use… and all that work is not a addition to his current role as president creating the product and testing it with diff erentiator—where fi rms diff er- of Crux, was most recently interim the market. We tried to listen to clients entiate themselves is in the research CEO of Big Data software vendor about where their pain points are.” they produce based on that data, the Incapture Technologies—the IP of These pain points tended to center intelligence they apply to it, and the which was spun off to form the basis of around identifying and integrating algorithms they build around it. But Crux—prior to which he spent six and new sources of data and processing it the prep work is very similar from fi rm a half years at NYSE Euronext. in such a way as to be useful to fi rms. to fi rm. Firms can spend between 60 Pritchard, who serves as head of To address these challenges, Crux’s percent and 90 percent of their data go-to-market at Crux, was previously off ering comprises three core areas: eff ort on that data wrangling, and only chief operating offi cer of AIG Science, a “supplier network” of data sources 10 percent on doing what adds value.” prior to which she spent 19 years at that allows potential users to fi nd, He likens the process to the logistics Goldman Sachs. „

8 November 2017 waterstechnology.com New Perspective

Risk Executives Accuse Vendors of Over-Promising on Liquidity Rule Ahead of a go-live date in December 2018 for the SEC’s liquidity rules, Anthony Malakian reports on accusations that vendors may have over-promised and under-delivered on their ability to provide accurate information for the fi xed-income market.

n October 13, 2016, the US helped craft the rule, and their inter- underestimating what’s happening Securities and Exchange pretation at the time was that the here, and how much it’s just an expec- OCommission (SEC) released vendors had perfect information for tation and a judgment and a statistical its fi nal rule to “promote eff ective fi xed income—maybe not perfect, exercise to fi gure out liquidity in fi xed liquidity risk management throughout but very solid, data that could easily income,” Halperin said. “Back in the the open-end fund industry, thereby incorporate the rules,” Bragg said. Yet early days of mortgages, we used to reducing the risk that funds will be despite “signifi cant progress,” third- talk about ‘the illusion of precision’ unable to meet redemption obligations party vendors are not there yet, he in mortgage prepayment modeling. I and mitigating dilution of the interests said, adding that he expects reporting think it’s the same thing here—we’re of fund shareholders.” It set a go-live US Securities to remain a challenge for the industry. going to have the illusion of precision date for December 1, 2018. and Exchange “[The SEC] thought the vendors on liquidity. But we’ll be able to fi ll in These “liquidity rules” require Commission were all turnkey and ready,” said the numbers and fi le the forms.” fund managers to classify holdings in Matthew Halperin, independent To do this, MFS has turned to a four buckets designed to segment the global risk offi cer at MFS Investments, third-party provider, not because its assets based on the length of time that it agreeing with Bragg. That’s why the functionality is necessarily exceptional, would take to convert them to cash— SEC has taken longer than expected but more because the fi rm doesn’t have highly liquid, moderately liquid, less to deliver updates to the fi nal rules, he the resources to deal with it in-house. liquid, and illiquid. When the SEC said, adding that he hopes the SEC will “It’s a Big Data management exer- fi rst proposed these new liquidity rules give an extension. cise and there’s no value in me doing it back in September 2015, it suggested Halperin said MFS has been calcu- just for myself and coming up with a six buckets, but reduced that to four lating liquidity for a number of years slightly better tweak on the statistical based on industry feedback. and, as such, will need to retrofi t its inference of liquidity,” he said. But one area where feedback from systems to comply with the new rule. Asset managers across the board industry participants—vendors in par- Additionally, these rules present an generally have fewer resources to work ticular—may have ultimately hindered “IT plumbing problem” because MFS with, Bragg said. As a result, most the fi nal rule is liquidity reporting for will have to work out how to move work with external providers—UBS fi xed-income products, said panelists data around between the four buckets. Asset Management uses MSCI for its at this year’s Risk USA conference in “If you are a subadvisor for another fi xed income market risk monitor- New York on October 25. fi rm, you have to work with that fi rm. I ing—because they have limited staff to Charles Bragg, US chief risk offi cer may have my way of wanting to bucket deal with these rules. at UBS Asset Management, said that something, but the chief risk offi cer “To the point of data manage- while the fi nal rule is better than the [at the other fi rm] might want to do ment, do I with a really—with a very original proposal, UBS is still strug- something else. So I then have to have limited staff —want to spend all my gling with how to go about bucketing a record of [for example] bucket two is time managing data, or do I want my fi xed-income assets, and whether it MFS, bucket one is Genworth,” he said. small teams actually analyzing and should build that functionality inter- reporting on that? That to me is a key nally or turn to vendors—who, he ‘The Illusion of Precision’ element,” Bragg said, adding that there said, over-sold their ability to produce Halperin said that classifying fi xed is “genuine desire” to outsource these accurate and detailed information income instruments is a challenge that areas, but that with just over a year fi xed-income liquidity. requires inferring liquidity based on until implementation, many people are “Two years ago I sat on a panel trades and market color. concerned whether fi rms and provid- with someone from the SEC who “I think that the SEC is really ers are ready for that kind of change. „

waterstechnology.com November 2017 9 New Perspective

Financial Conduct Authority Likely to Review Consolidated Data in 2018 It is looking increasingly likely that no consolidated tape provider will have received authorization by the time Mifi d II comes into force on January 3, 2018. A UK regulator says the absence is an “ongoing issue,” and says an early review is a “distinct possibility.” Jamie Hyman reports.

irms organizing their Mifi d July 3, remains open, so it may receive using a CTP who is not authorized, am II strategies are essentially more APA or ARM requests and grant I going to be comfortable in sharing Fassembling a complicated more approvals. my post-trade data with them, or not?” jigsaw puzzle, but come the January 3 Hanks said the absence of an In a Mifi d review published in compliance deadline they will fi nd one authorized CTP means there is a 2010, The European Commission piece missing—no entities in the UK “distinct possibility” that the FCA (EC) recommended the establishment have requested authorization to act as a will rapidly review data consolidation of a mandatory European CTP. The consolidated tape provider (CTP). under Mifi d II during 2018, possibly public consultation outlined three “No one has come forward to before the regulation applies to non- options for its operation: a single, volunteer to be that sort of data report- Stephen Hanks equities the following year. non-profi t entity; a single, commer- ing service provider,” Stephen Hanks, Financial “The legislation provides for the cial entity appointed by regulators Conduct manager of Mifi d II coordination at the Authority possibility of the commission legislat- after a competitive tendering process; Financial Conduct Authority (FCA), ing to enable Esma [the European or competing commercial providers. told delegates at a WatersTechnology Securities and Markets Authority] The US chose the fi rst option back in Mifi d II discussion on October 25. to hold some type of competition to 1975, when regulators authorized the “I’m not sure whether there are any appoint a consolidated tape provider, Securities and Exchange Commission [CTPs] in any other jurisdictions in but it’s not clear to me how exactly that to create a tape. The EC, however, Europe who have come forward.” would work in practice,” Hanks said, preferred option three, a market-led According to the legal defi ni- adding that if entities have not volun- solution. In Article 117 of Mifi d II, tion outlined in Mifi d II, CTPs are teered to be authorized as CTPs, he is the commission explains that it opted authorized under the regime to collect unsure whether they could be enticed for competing, commercial providers trade reports for specifi ed fi nancial to bid to run the contract and be the based on the belief that it would fur- instruments from regulated markets, CTP in Europe. If entities are able to ther integrate the European market and multilateral trading facilities, organ- consolidate data without being subject make it easier for participants to access ized trading facilities and approved to Mifi d II’s restrictions, they might a consolidated view of trade transpar- publication arrangements (APAs), and determine that the costs of providing ency information. to consolidate those reports into a con- CTP data reporting services outweigh “By requiring all consolidated tinuous, electronic live data stream, the benefi ts, he said. tape providers (CTPs) to consoli- providing price and volume data on Hanks predicted that the lack of a date data from all APAs and trading each fi nancial instrument. CTP will be “an ongoing issue through venues, it will be assured that com- Mifi d II introduces the new next year and possibly thereafter.” petition will take place on the basis category of data reporting service In the meantime, commercial pro- of quality of service to clients rather providers, which includes CTPs, APAs viders off er consolidated data that fi ll than breadth of data covered,” the and approved reporting mechanisms many of the capabilities of a CTP but regulation reads. (ARMs). Although each engages in are not authorized. Gouri PKhatua, a An EC spokesperson declined to diff erent activities under the regime, Mifi d II compliance project manager comment on whether that stance has the authorization process for all three at Rabobank, says these present “chal- changed in light of the lack of poten- is similar. According to a list pub- lenges” for end-users. tial CTPs. But Article 90 lays out a lished by the FCA, four ARMs and “Are [commercial consolidated plan for such a scenario: the EU will six APAs had been authorized as of data providers] allowed to collect the make a request to Esma that a CTP be October. The regulator says the APA post-trade transparency reports if not appointed via public procurement, as application process, which kicked off authorized?” PKhatua says. “If I’m mentioned by Hanks. „

10 November 2017 waterstechnology.com New Perspective

Axon Raises Curtain on Second ACT

With exchange data license policies continually evolving, Axon Financial Systems is evolving the process of collecting data to demonstrate compliance with licenses. Max Bowie reports.

elfast, Northern Ireland-based respondent’s answers—or by upload- source documents, designed to pro- Axon Financial Systems, ing supporting information, such as a vide users with clarity around what Ba provider of exchange list of users. kind of license they require. By link- policy and licensing information, has “Once they have that, it’s ing to PEAR, clients can analyze the unveiled a new product, dubbed ACT immediately electronic and data- cost impact of a change in exchange (Application Compliance Tool), which based—compared to it being a big policies or fees on a specifi c applica- helps fi rms manage the re-certifi cation project to get the answers from a tion or group of users. and onboarding processes for applica- report in a Microsoft Word document “For example, if an exchange tions that consume market data. into a database—so they can begin to introduced a new non-display policy, Axon co-founder and chief answer questions such as how many a client can see how and how many executive Chris Hutton says the users it would impact. And while vendor developed ACT in response you can’t usually replace an exchange to requests from fi nancial fi rms who “We took into account what exchanges want [because it may be the single source were unhappy with the current pro- of domestic data], you can check cess of collecting information, where a in terms of what applications are and what whether the strategy that uses it is still fi rm might engage a team of consult- they do… so that an exchange can review running,” Garforth says. ants once or twice a year to manually what it wants a demonstration of before even The original plan for ACT was to collect usage information from appli- coming on-site.” Aaron Garforth, Axon build a standalone portal—and it can cation “owners” and create reports. Financial Systems be used on a standalone basis—but The problems with this approach after starting development, the vendor are that collecting the data this way realized that integrating it with can take several months, and relies PEAR would make it more valuable, on someone manually inputting the instances of a vendor’s product they Hutton says. results into a format or platform that have, or what the split is between ven- makes them usable and accessible. dors across users and applications… Audit Support In contrast, he says, “We’ve created which you would want to know if you In addition, fi rms can use ACT to a living portal… that eliminates the had a license renegotiation coming support audit requirements. “If you costly and time-consuming process of up,” says Axon chief information are subject to a market data audit from having third parties come in and do offi cer Aaron Garforth. an exchange, you now have a lot of this for months.” Axon recommends that clients the answers already in a database use its standardized terms, such as for that you can export,” Garforth says, Bespoke Survey describing non-display, algorithmic adding that the data in ACT won’t ACT allows market data professionals trading, order-routing, or risk man- eliminate exchange audits, but will to create a custom questionnaire— agement applications. “The main defi nitely expedite them. “We took either from scratch, or by importing reason for that is we can link the into account what exchanges want their existing questions and pro- information in those answers back in terms of what applications are and cesses—that assesses data usage to our PEAR platform, so clients what they do… so that an exchange within their organization. Once can see which applications and users can review what it wants a demonstra- they’ve created their survey, data staff are aff ected by policy changes from tion of before even coming on-site.” email a link to all application owners, exchanges,” Garforth says. Two large global banks—one of who answer the questions within PEAR (Policies, Explanations which was Axon’s original develop- an online portal either in free-form and Reporting) is a normalized web- ment site—are already using ACT, text, by choosing from a selection based repository of exchange policies, though Hutton says the vendor has of potential answers—including fees, and historical and upcoming also received interest from hedge “nested” questions that ask diff er- announcements, “translated” into funds, smaller banks, and other fi nan- ent follow-up questions based on a plain English with links to original cial fi rms. „

waterstechnology.com November 2017 11 New Perspective

Goldensource on Track to Double Bookings for 2018

Goldensource CEO John Ely comes clean about the strategies behind the fi rm’s bigger market share, and tells Jamie Hyman how it pinpointed what would refl ect industry needs, what it changed, and how he and his management team have shored Goldensource up for future industry developments.

hen John Ely was named changes Ely says the fi rm could make infrastructure that will allow us to CEO of Goldensource credibly only after “really doing the move on to the next thing,” he says, Wfour years ago, he knew work on the core product and chang- adding that the company has products he wanted to make some “really sig- ing how our clients interacted with in development with that goal in mind, nifi cant changes” to the enterprise data the application.” The resulting market although he declined to share details management vendor. With bookings traction “was a refl ection that we made just yet. Ely says its regulatory report- on track to increase 100 percent this some good decisions but also, frankly, ing products can be thought of as a year, following 60 percent growth that this was an area we’d neglected.” “technical pipe” that allows customers last year, it appears those changes are Goldensource’s management also to report to regulators while confi rm- paying off , and Ely breaks down why. John Ely looked inward, changing its develop- ing that certain data is accurate, plus He says the fi rst step was to fi nd Goldensource ment process from a waterfall model an underlying infrastructure that con- out the strengths and weaknesses of the to agile, which Ely calls an “incredible fi rms regulatory compliance. fi rm’s products—and it didn’t talk only journey,” allowing the company to “We’re trying to write it generically to existing customers; it also asked develop more quickly while improv- enough so that we can handle [future prospects it had pitched to and lost. ing code, applications and client regulations], but I imagine three years “We got some fairly consistent responsiveness. from now, when some new regulation feedback,” Ely says, with customers and “From a company perspective, we comes out, will we have to make some prospects reporting that Goldensource’s really changed from being somewhat tweaks to the pipe itself?” he asks. “I data model is both mature and extend- of a monolith, where we really did hope not, but I would imagine so.” able, and fi t for purpose with both everything from start to fi nish, to As far as their market data aspira- buy-side and sell-side customers. being much more outward-looking,” tions go, Ely says their approach is “The feedback we got on the nega- Ely says. “So that is now refl ected inspired by his days as a risk manager, tive side was that our UI [user interface] across the entire organization, where coming in every morning to read wasn’t that great, our usability wasn’t when we see something that needs reports from yesterday that were not that terrifi c, our performance wasn’t to be done, the fi rst question we ask very useful. “What you need to do is where it should be,” he says. ourselves is, ‘Are we any good at this?’” have real-time updates, or near real- This led to a fundamental rebuild- That has led the fi rm to outsource time updates, and one of the inputs to ing of the user experience. “The fi rst or fi nd partners for functions such as that is market data. We’ve built out an thing we did was insert an object layer email servers and bug tracking. “We entire infrastructure that allows these between the data model and the UI— don’t do that stuff anymore because we organizations that are taking market eff ectively a business representation of want to focus on building really great data to clean that data, create that the underlying datum. On top of that, EDM [Enterprise Data Management] single version of the truth and then we put a UI that was much easier to applications.” publish it to the middle- and back- work with and more user-friendly. For the next 18 months to two offi ce systems that need it.” Then we did a bunch of work on the years, Goldensource’s focus will be on He says this is an area where core engine to make sure the perfor- improving core EDM verticals, push- Goldensource predicts signifi cant mance got where it needed to be.” ing into “this market data space which growth, so it will continue to invest in Additional upgrades included we’re super interested in,” and regula- market data while remaining true to market data solutions and off erings tory reporting, Ely says. its core philosophy of sticking to the on the regulatory reporting side, spe- “Mifi d II is an incredibly important area on the Venn diagram where what cifi cally for the Markets in Financial regulation for our clients, but we’re customers need overlaps with what the Instruments Directive (Mifi d II), trying to build a generic reporting company does well. „

12 November 2017 waterstechnology.com New Perspective

Burton-Taylor: KYC/AML Spending Soars, Vendors Expect Further Boost Driven by regulatory compliance demands, the last fi ve years have witnessed a spending boom on data and solutions to support KYC and AML activities. Joanne Faulkner reports on the fi ndings of Burton-Taylor International Consulting’s fi rst report on this space.

pending on data to support reg- particular regulations in both the EU expectation that spending on KYC/ ulation-related functions has and the US around ultimate benefi cial AML data and services will continue Sboomed over the last fi ve years, ownership,” and by companies starting into 2018, contrary to survey data according to the fi rst report on the to realize that “they simply have to be from Thomson Reuters’ 2017 Cost of Anti-Money Laundering and Know more effi cient about some of their pro- Compliance Survey, Porter says. “There Your Customer landscape by Burton- cesses around customer onboarding,” was defi nitely some hint in that report Taylor International Consulting—part he says. “At a certain point, you simply that compliance budgets were starting of interdealer broker TP Icap’s Data & have to start using a structured solution to tighten in some areas: few companies Analytics division—as fi rms increas- to monitor adverse media changes… were expecting major increases in their ingly turn to external suppliers of Spending is up you have to turn to a structured data- budgets. So an interesting thing for AML and KYC data and information by almost base in order to cope with the volumes us is that in this runs contrary to that to help them beef up cybersecurity and 17 percent a of stuff you have to work through.” because there is no sign of tightening. year, report meet legal obligations. fi nds Porter also notes how the past fi ve All the vendors we’ve spoken to are Private equity investment in this years have seen large amounts of private very comfortable and optimistic that space has also boomed, with several equity money fl ow into the KYC and this continues to be an area where they players now backed by private equity AML space. “We’re now starting to see should be investing because they’re funding, as private equity fi rms seek to the result of some of those investments going to keep seeing growth.” get into what is a very strong growth fl owing through into the companies According to Burton-Taylor’s area of spend, according to the report, that have been acquired,” he says, citing report, Thomson Reuters is the larg- which focuses on companies or busi- the creation of RegTech vendor Opus est supplier in the AML/KYC market, ness divisions with a core competency in 2013 by private equity fi rm GTCR with an estimated $204.7 million in in AML and KYC-related data and and industry veteran Douglas Bergeron, 2016 revenue—more than twice that of information and related services. which has since used a reputed $500 its nearest rival, LexisNexis. The report says spending has million “war chest” to acquire third- Porter says that while it has taken grown at a compound annual growth party management software vendor some time for larger providers to rate of 16.86 percent over a fi ve-year Hiperios and KYC/AML platform acknowledge these business lines, period, from $268.9 million in 2012 to vendor Alacra, and also noting deals “large information-savvy organizations $479.9 million in 2016. In 2016 alone, by BC Partners-backed Mergermarket are now seriously investing in these spend on compliance data rose 17.9 to buy C6 Intelligence in 2015 and lines.” And while smaller organizations percent from $407 million in 2015. Vista Equity Partners’ acquisition of have also taken time to realize the value Report author Chris Porter, direc- Regulatory DataCorp (RDC) in 2016. of this data, these “now have more tor at Porter Walford Consulting and The acquisition of company data fi repower behind them” as a result of an associate at Burton-Taylor, says the provider Bureau van Dijk Electronic investment and new ownership—in time was right to compile the fi rm’s fi rst Publishing for €3 billion by US credit some cases, through private equity report on compliance data. “It’s clear ratings agency Moody’s in May was investments. “It seems to be a very that it’s a real hotspot at the moment in also in part motivated by eff orts in the positive time for all the vendors in this terms of the increased spending, inno- AML/KYC space, Porter adds. “We’ve space,” he adds. vation and investment into it,” he says. seen a lot of investment going into The report is based on independent Spending by fi rms on third-party this… because it’s still a very strong research and in-depth interviews con- KYC/AML vendor data and solu- growth area [of] spend,” he says. ducted by Burton-Taylor with suppliers tions is primarily driven by upcoming Porter says “all the signs we’re of data and information services to sup- regulations, Porter adds. “It’s driven by hearing from vendors” support the port AML and KYC needs. „

waterstechnology.com November 2017 13 Delivery Technologies

Bloomberg’s Chat Gambit: The Feint Before a Knockout?

Bloomberg’s decision to introduce a loomberg has begun off er- select existing Bloomberg clients for cut-price version of its Instant Bloomberg ing a version of its Instant $10 per user per month—signifi cantly BBloomberg chat tool—widely cheaper than the near-$2,000 per messaging is being touted by some as acknowledged as one of the “sticki- month cost of a Bloomberg Professional a sign that the data giant is rattled by est” elements of its $22,000-per-year terminal, even though reports abound bank-backed secure messaging startup Bloomberg Professional terminal— of traders bearing the full cost of Symphony. Joanne Faulkner investigates unbundled from its terminal, to allow Bloomberg terminals despite using professionals within fi nancial institu- only a fraction of its features: report- whether the move refl ects genuine tions who do not subscribe to the edly often just Instant Bloomberg, not concern by the vendor, or is simply how Bloomberg Professional service to use only for the chat functionality itself, but Bloomberg is adapting to the broader the same messaging platform as col- also for its market penetration and the evolution of the messaging space. leagues within their fi rm, Bloomberg breadth of market participants users can offi cials confi rm. reach through the service. Dubbed Enterprise IB and But does Bloomberg’s move risk described by the vendor as “an intra- cannibalizing its existing terminal base, fi rm communication and collaboration or even allow users to pair its prized suite of products,” the chat tool is being messaging with cheaper terminal off ered to non-terminal users within products from alternative vendors? Is

14 November 2017 waterstechnology.com Delivery Technologies

the only way that they could com- municate with their client. It became quite a stranglehold that Bloomberg used eff ectively to sell a desktop,” the “Bloomberg and Thomson Reuters have product head says, adding that this obviously seen a thing that they have to latest move is a “strong indication that contend with, and Symphony has always had Bloomberg is now quite defensive in that potential to become a terminal: you can terms of what has been a very closed get news over it, MDX just signed on, giving approach to their desktop and to messaging.” it a commodities data angle. Obviously there Symphony costs $20 per user per has been some impact for Bloomberg to month, and allows clients to integrate have done this—or they’re just laying the other data sources and functions groundwork for a more open platform.” onto its platform. Other terminal- based products, like Money.Net and Steven Moreton, CJC Infront, integrate Symphony into their product set to off er a messaging service that provides faster go-to- market and broader connectivity and the vendor truly rattled by the potential diff erent fi rms, and its ultimate aims client base than individual vendors threat from secure messaging provider remain to become a vendor-neutral, could achieve alone. However, to Symphony Communication Services, industry-wide data delivery frame- become a viable alternative to other which is backed by a consortium of work. To that end, it continues to sign messaging platforms, Symphony some of the world’s largest banks and up content partners. Most recently, at would have to step out of its pri- fi nancial institutions, including many Symphony’s Innovate conference on mary use of an internal messaging of Bloomberg’s largest clients? Or has October 4, the vendor announced the and workfl ow platform and become it merely seen the writing on the wall integration of data technology vendor more widely adopted as an inter- about the opening-up of the messag- MDX Technology’s MDXT Connect bank communication tool. To do ing space and views this move as a way data distribution platform, enabling this, it needs a bigger network of to consolidate and expand its existing Symphony users to access commodities users, and has already taken steps to footprint? data available via MDX. This adds to a broaden its base and accelerate adop- Symphony was created in 2014 via host of other information partnership tion by partnering with Thomson the $66 million acquisition of soft- that include Dow Jones, S&P Global Reuters, announcing in June that ware vendor Perzo by a consortium Market Intelligence, Money.Net and licensed users of Symphony’s mes- of Goldman Sachs—ostensibly in Selerity. saging network will be able to share response to concerns that Bloomberg Symphony’s open approach is in charts, news and data from Thomson might have access to confi dential contrast to Bloomberg’s traditional Reuters’ Eikon terminal. data communicated via its chat closed-box approach, which has Symphony’s investors—including function—and 13 other fi nancial nevertheless seen Instant Bloomberg Goldman Sachs, Bank of America institutions. Shortly thereafter, the cement its position as the go-to Merrill Lynch, BNY Mellon, vendor acquired assets—including a place for the Street to communicate. BlackRock, Citadel, Citigroup, Credit contacts directory technology—from However, a product head at a rival Suisse, Deutsche Bank, JP Morgan, Markit, which had been building its data vendor describes Bloomberg’s Morgan Stanley, Nomura, and Wells own secure messaging platform under decision to off er an unbundled chat Fargo—also happen to be some of the moniker Collaboration Services. service as a reaction to the traction Thomson Reuters’ biggest clients, and The vendor is more conservative that she believes Symphony is starting most are heavy users of the vendor’s now about how it presents itself than to achieve. Eikon desktop. The integration of during its early days, when the service “Credit to Bloomberg—they have Symphony with Eikon is expected was openly touted as a “Bloomberg- been hugely successful in generat- to be released in December, and a killer”—perhaps because the service ing a lot of revenue off the back of source familiar with the situation says is still primarily an intra-fi rm mes- the fact that customers felt they had that over the next six to 12 months, saging service, though it continues to to buy Bloomberg because clients this collaboration will continue to gain traction in terms of connecting had Bloomberg messaging and it was gain traction in the marketplace. “I

waterstechnology.com November 2017 15 Delivery Technologies

don’t think Bloomberg off ering a $10 unbundled messaging response to that is going to have any impact on that at all,” the source says. “Symphony has very power- ful investors that really have the potential to change and move the community…. There is a real desire to really break open the closed desktop of Bloomberg… [and] the days of trying to hold a community captive with a very closed technology approach and a very closed business model is a dated paradigm,” says the product head at the rival data vendor, adding that cut- price, unbundled chat does nothing to address this broader issue. “It’s a defen- sive mechanism to try and keep the perimeter on this, but it’s not solving the central theme, which is that busi- ness across the board these days is based on co-innovation and collaboration and open platforms, which is what is scary to Bloomberg.” Steven Moreton, senior technical director at market data consultancy CJC, agrees that instant messaging (IM) Based on discussions with clients potential threat that Symphony could has moved on from basic chat off er- about messaging, “They’re not sitting displace further terminals by sneaking ings, and is now a staple part of client down and thinking about Symphony in the back door with an industry- workfl ow at institutions and vendors, versus Bloomberg, or Symphony versus accepted messaging tool without the and fi rms are looking how to push this Reuters; it’s Symphony versus Slack,” Bloomberg terminal price tag. even further with the development Moreton adds. “Bloomberg and of chatbots—a text-based interactive Thomson Reuters have obviously seen Not All as Rosy as it Seems? communication mechanism that allows a thing that they have to contend with, However, the startup still has a lot users to initiate a process or type a query and Symphony has always had that of work to do to convince some that they would otherwise have asked a potential to become a terminal: you can seasoned industry participants, who colleague or intranet, which uses IM as get news over it, MDX just signed on, question whether all the fi nancial the interface for the query. “You could giving it a commodities data angle… fi rms (not to mention Google) that ask a question such as ‘Which of my Obviously there has been some impact have invested substantial sums to traders are doing this?’ You could ask for Bloomberg to have done this—or get Symphony off the ground really a vendor, ‘Do you provide this market they’re just laying the groundwork for want Symphony “to succeed in its data? What is the price?’ The chatbot a more open platform.” own right, or whether it was about could integrate with entitlement sys- According to a report by gaining leverage with some of the tems and come back with the answer. TP-Icap-owned market research incumbents” to drop their prices You can develop a lot of artifi cial intel- fi rm Burton-Taylor International or off er more fl exible models. The ligence when instant messaging is the Consulting, Bloomberg’s worldwide industry-backed utility approach portal—that could be Symphony, or installed terminal base fell by an has proved eff ective in the past as a it could be another service like Slack. estimated 3,145 positions to 324,485 way to keep third-party providers in From a vendor level, they probably terminals last year, though this decline check, notably in the exchange trad- don’t want to get involved in that huge was off set by 10 percent growth in ing and clearing worlds. business level of it, but there is a huge its non-terminal business. Some see According to one industry amount of potential with chatbots,” unbundling its chat function as a expert, Bloomberg’s decision to Moreton says. way for the vendor to stave off any off er an intra-fi rm chat strategy is

16 November 2017 waterstechnology.com Delivery Technologies

not a signal that the vendor is pan- “A lot of these banks have very more to give them the data. Then icked by the potential threat posed short thresholds [to realize returns]. I ideally you’d overlay that data require- by Symphony, but is instead a clever think you’re seeing that already with ment with a real good sexy messaging sales strategy. “Even if all they’re this business decision—and it is a busi- system, which would be Symphony. trying to do with this is to get their ness decision—to not go ahead with But that’s not happening. There isn’t existing clients to use more of the Symphony. In Asia, they’ve made an a single fi rm at the moment that has chat at a lower price elsewhere assessment that there is no way that managed to displace a Bloomberg within their organization… that’s Symphony will get its act together to with Symphony. Given that’s the case, a diff erent strategy than trying to make this migration happen and yield why would Bloomberg be worried?” combat or try and stop Symphony a benefi t,” the source says. A Symphony spokesperson says from taking their key users.” If David Gurle During a roundtable on the state the vendor has not seen any impact on anything, rather than signaling a Symphony of messaging at the North American its traction as a result of Bloomberg sea-change in the IM space, this Financial Information Summit unbundling its chat function, adding, could be the start of Bloomberg (Nafi s) in New York in May, partici- “in fact, Symphony continues to see a being more “creative” with its pants also discussed the displacement strong growth trajectory.” However, commercial activities, the expert potential of alternative chat plat- in doing so, the spokesperson again says. “This is new territory for forms. “Everyone at BlackRock and emphasizes that Symphony is not spe- Bloomberg to start off ering deals.” Goldman Sachs is supposed to have cifi cally positioning itself to displace Earlier this year, Inside Data [Symphony], but how many have it Bloomberg. “The fi nancial industry Management learned that staff at and use it externally? Very few. If I’m is increasingly focused on security Credit Suisse Asia were refusing to on the sell side and I want to chat to and product innovation, and we don’t fund Symphony any further based my client and they’re not there…. The see this as competitive. Symphony’s on the lack of community and its problem with displacing anything is vision is to extend our collabora- inability to displace Bloomberg community,” said one participant. tion platform to displace email and terminals, according to a source And according to the indus- other legacy enterprise platforms as a familiar with the matter. Although try expert, observers should view whole, not to target any single off er- the parent Credit Suisse organiza- Symphony’s user numbers—around ing,” the spokesperson says. tion—one of the original consortium 230,000—and targets with a healthy At the NAFIS roundtable, an members to invest $66 million to dose of skepticism. ”Symphony is executive director at a global bank acquire then-Perzo in 2014 and going to hit targets with signing up said there could be ways for a mes- transform it into Symphony—will banks because banks have already put saging system like Symphony to help still fund Symphony, the source the money in in the fi rst place... [so] reduce reliance on—if not displace— called this a vote of no confi dence they have to be seen to be backing the major vendors. “If it becomes from the Asia-Pacifi c region, and it. But there’s a diff erence between a conduit delivering research and a sentiment that “may be bubbling fi rms jumping in and paying for it content, and becomes a way to unbolt up in other regions.” The source and actively rolling it out aggressively some direct connections from other says that Credit Suisse Asia made internally.” service providers… if your messag- the decision because it did not He says that from a displacement ing system becomes your market data believe there was “any chance” point of view, “when you’re trying to delivery platform, in the end it’s not of Symphony reducing the fi rm’s remove a Bloomberg terminal from a so much about displacing Bloomberg; spend on Bloomberg—which sup- desk, fi rstly… you have to challenge it’s about checking Bloomberg—so plies around 800 terminals to the the end user’s requirements. You obvi- Bloomberg isn’t unrestrained, because fi rm in the region. They add that ously understand… the data they’re everybody relies on their messaging. many saw it as “the key to removing using on a day-to-day basis—what And just because you’re not reliant Bloomberg, which I think is what they are using it for, why they are on Bloomberg messaging doesn’t most people agree was the initial using it, trade support—and if the data mean that you have to unbolt from reason the banks got involved [as is going into Excel spreadsheets, etc. Bloomberg, but it might be three investors], despite what their CEO Then once you’ve done your needs years until the next price increase, says their goal is,” referring to analysis, you try to replicate what or they might throw in something Symphony CEO David Gurle’s they’re using with other products and to become more competitive in the reluctance to openly position the services that you’re already paying for market…. If the messaging piece has vendor as a direct competitor to and that you might have an enterprise a competitive alternative, then it may Bloomberg. license for, so it doesn’t cost you any infl uence Bloomberg’s pricing.” „

waterstechnology.com November 2017 17 Research

EU Gets Tough on ‘Research’ Unbundling

Mifi d II will force sell-side fi rms to unbundle ome European dealers had granted such an exemption. “[We] research fees from dealing commissions hoped that applying disclaimers cannot share [the view] that material Sto front-offi ce notes from the produced by a bank’s front offi ce is they charge to buy-side clients. The banks start of the revised Markets in Financial automatically out of scope of Mifi d claim their front-offi ce notes meet the Instruments Directive (Mifi d II) in II’s unbundling rules. An assessment criteria of being a minor non-monetary January 2018 would safeguard such of the material should be carried benefi t, but EU watchdogs aren’t content from the rules requiring deal- out, taking on board the aforemen- ers to separate fees for research from tioned criteria, in order to determine convinced, reports Risk.net’s Samuel dealing commissions. These banks say whether the material qualifi es as Wilkes. material produced by their front offi ce research or not in the context of Mifi d falls outside the scope of these rules and II,” says a spokesperson for Spain’s can be distributed freely to the buy side. Comisión Nacional del Mercado de (These rules also bar buy-side fi rms Valores. from receiving research free of charge, Instead, regulators and lawyers as this is considered an inducement say the reach of the rules depends on to trade through the bank, creating a whether front-offi ce notes are “sub- potential confl ict of interest because it stantive.” But assessing front-offi ce deters fi rms from seeking best execu- material for substance is easier said tion for their end-investors.). than done: Although the content is But three European Union often thin on analysis, it can hold national regulators warn that deal- subtle nudges for the reader toward a ers should not assume they will be trading strategy, which is supported

18 November 2017 waterstechnology.com Research

an investment strategy, and provide a “substantiated opinion as to the pre- sent or future value or price of such instruments or assets.” “There is no bright line test for deciding UK regulator the Financial whether material is substantive. Facts, Conduct Authority (FCA) reiterated circumstances, scenario, the background— the same language in a September you have to take it all into account when 2016 consultation and in a Q&A deciding if it is substantive research or not. document published by the European Securities and Markets Authority Clearly, if there is a recommendation in it (Esma) in April 2017. and it relates to a specific product, then it “It is a very broad defi nition, and I is definitely research, but there is a large think it is helpful in one way because grey zone in the middle, which needs to be it means a report that doesn’t make a specifi c investment recommendation analyzed on a case-by-case basis.” Neil might still be research if it is sub- Robson, Katten Muchin Rosenman stantiated and could lead a client to make an investment or prevent them by small but perhaps valuable analysis the justifi cation, saying “subjective” from an investment. That is good made by the bank. material is not exempt from the rules. for types of research that don’t spe- “There is no bright line test for “Firms cannot simply assume, for cifi cally say ‘Buy shares in Vodafone’ deciding whether material is substan- example, [that] all desk-based content or ‘Buy euro/dollar,’ but it is up to tive. Facts, circumstances, scenario, or conversations are out of scope,” the user of that research to decide the background—you have to take it says a source at one EU national regu- whether it meets that defi nition,” says all into account when deciding if it is lator. “It is also incorrect that research Vicky Sanders, co-founder of Mifi d substantive research or not. Clearly, if has to be objective or independent to II-compliant online research market- there is a recommendation in it and it be in scope, which is not relevant in place RSRCHXchange. relates to a specifi c product, then it is making their judgment.” There is no defi nition of “substan- defi nitely research, but there is a large A spokesperson at Dutch fi nan- tive” in the Mifi d II text, though the grey zone in the middle, which needs cial markets regulator Autoriteit directive does indicate what consti- to be analyzed on a case-by-case basis,” Financiële Markten concurs: “An tutes non-substantive material. This says Neil Robson, a London-based investment fi rm wishing to receive includes a lengthy example: “Short- partner at law fi rm Katten Muchin or provide such material should make term market commentary on the Rosenman. an assessment whether any material latest economic statistics or company qualifi es as research using the cri- results, for example, or information on Subjective View teria mentioned in recital 28 of the upcoming releases or events, which is Despite this need to examine each delegated directive. These criteria do provided by a third party and contains front-offi ce note individually, seven not cover the part of the organization only a brief summary of [the bank’s] investment banks interviewed by producing the material or whether the own opinion on such information Risk.net maintain that their front- material is objective.” that is not substantiated nor includes offi ce material should not be treated Recital 28 is within a delegated any substantive analysis, such as where as research. One executive justifi es directive that was published by the they simply reiterate a view based on this on the grounds that research is European Commission (EC) in April an existing recommendation or sub- supposed to be objective analysis, 2016. The text states research should stantive research material or services.” produced independently of the bank’s be understood as covering one or The legislation deems such material a own interests. Material produced by several fi nancial instruments or other minor non-monetary benefi t, which its front-offi ce desk analysts is based assets, the issuers or potential issuers can be received freely. on the bank’s own trading inventory, of fi nancial instruments, or closely and is therefore not objective, which relating to an industry or market that Strategic Ambiguity would mean it is not research. informs views on fi nancial instru- In a sign of the level of ambiguity This language is, however, absent ments or the issuers in the market. In surrounding the situation, Risk.net in the legislation. Two national addition, this type of material could Vicky Sanders obtained a two-page trading desk note regulators explicitly take issue with explicitly or implicitly recommend RSRCHXchange from one investment bank with dis-

waterstechnology.com November 2017 19 Research

claimers on both pages. The disclaimer ment strategy: buy the cheap and sell text in which it was being provided to on the fi rst page states: “This is a prod- the expensive pairs. fi gure out whether there is a particular uct of the FX trading desk and is not Tim Cant, a regulatory lawyer product or investment that they are research material.” The disclaimer on at Ashurst, says using graphics could recommending or suggesting,” he says. the second page emphasizes the mate- constitute a substantiated analysis rial is not research in accordance with recommending a strategy, even if the No Consensus applicable EU and US rules. Yet, the word count is very low—making it Sources conclude buy-side fi rms are second disclaimer points the reader to research for Mifi d II purposes. likely to diff er on whether the same further disclosure information, located “There is no exemption for picto- piece of material is research. Firms on the bank’s research portal. rial analysis, which is substituted text. could assess the material diff erently Multiple sources could not agree So if you want to, you can make some- depending on various factors, such on whether the note constitutes thing substantive through graphical as whether the fi rm receiving the research. The analysis spans slightly or pictorial illustration [in] the same material actually participates in (or more than a page and provides no way you can through words, if they is interested in participating in) the written recommendation to trade. But are original or contain analysis,” Cant market the note analyzes. If the buy- it does contain a list of currency pairs, says. side fi rm is not interested, they might comparing the volatility for each pair, Katten Muchin Rosenman’s not class it as substantive. using the bank’s proprietary data. The Robson suggests a buy-side client “If somebody sends us analysis list is presented in an order that has the would need to look beyond the note on Canadian small-cap stocks, is this top marked ‘vol is expensive’ and the itself to consider the nature of the something that would be considered bottom labeled ‘vol is cheap,’ prompt- market it covers. “That sounds like research? I mean, I guess it might be ing some to suggest that it is research, it is falling into a grey zone and you research, but would it be substantive because it seems to suggest an invest- would have to start looking at the con- if we are not in the market? We are

20 November 2017 waterstechnology.com Research

not investing in it, so it has no value proprietary data and models to present execute a trade. But Vynckier says this to us, and as such we shouldn’t really information on a fi nancial instrument, is not the case with front-offi ce mate- care whether we are receiving it or as opposed to using public sources, it is rial, as the notes are usually distributed not,” says an investment operations arguably research. to cultivate a relationship and no one manager at an asset management “The work behind them may trades directly on the material. “It is fi rm. On the other hand, if the asset mean the fi rm has allocated a valuable more of a relationship thing, so the sales manager is not active in the market, resource to producing them. If they are force can call up with a talking point. but receives a note that prompts it to straightforward graphs and do not con- To say buy-side fi rms grab those trad- consider entering or fi nding out more tain analysis or original insights, then ing notes and trade on them, that is not about the market, it could be regarded the answer is no. But if you require a the case. Intelligent counterparties take as having some value, and hence be Tim Cant degree in mathematical engineering in the input, but it isn’t the case that a classed as research. Ashurst and you produce the research as a result trade follows straight from the receipt Finally, in the same scenario, if of an algorithm you created, then that of trading commentary,” he says. the buy-side fi rm were in the market, starts looking a bit more substantive,” The fi nal decision on whether it would need to make a further Cant says. material is research will fall to buy-side assessment as to whether the material However, the investment opera- fi rms, which are obligated under Mifi d is substantive, as the fi rm might not tions manager at the asset management II to ensure they have no confl icts of learn anything new from the analysis. fi rm says they would then look at the interests and are not accepting induce- This could mean that front-offi ce actual substance of the research to ments. “In the regulation, it says it is material analyzing less well-covered determine whether it is worth paying up to the buy side to decide whether instruments would be classed as for. “If they are analyzing some prices material is research. If banks mark research, but similar material on on some instruments and saying, something as not research, it may save heavily followed markets would not. ‘These look cheap, based on certain a bit of time, but the asset manager Buy-side fi rms are less likely to have metrics we have in our model,’ that still has to check,” says London-based extensive in-house knowledge already is not diff erent from saying ‘buy’ or Mike Carrodus, founder of research for the less well-covered instruments. ‘sell’ and, as such, it is a recommenda- comparison tool Substantive Research. This could be especially relevant tion and it is research. Whether it is “Even if a bank states its front-offi ce for notes on small and medium-sized substantive is the next question,” the material is just short-term commentary enterprises (SMEs) rarely covered by operations manager says. and says to the market, ‘We are polic- research providers, where all infor- ing this,’ asset managers will still check mation is valuable. “Information is What’s the Point? if it is research. When the FCA checks, extremely valuable on SMEs because One alternative way of deciding and compares who the asset manager it is extremely rare and expensive to whether material is research might be is executing with and who they are collect. All of this tends to suggest to ask why the material was distributed receiving research from, the asset man- you would have diffi culty claiming in the fi rst place. The original intent of ager has to have a defensible position.” that material on SMEs is still in the the research rules in Mifi d II was for The problem for the sell side is grey zone between research and trad- buy-side fi rms to scrutinize how much that, even if buy-side fi rms fear front- ing commentary,” says Erik Vynckier, of their clients’ money they spend on offi ce material might be considered a manager in the investment division research and eliminate incentives for an inducement, they could still be of Dutch insurer Conservatrix and fi rms to execute with one dealer rather reluctant to start paying for it. The former chief investment offi cer for than seek best execution. investment operations manager at an insurance at asset management fi rm “If a fi rm has sent material to a asset management fi rm says they don’t Alliance Bernstein. client, then there must be a reason why see the value in the material if the bank Even if material on SMEs is light the person who has distributed that is purely giving them the note to push on analysis, it could be construed as research has done so. Ultimately, that the dealer’s inventory. “These guys are research because the information is what we should be asking here—not all market-makers and they have inter- would be unique and only available whether or not it was research, but the ests, which are heavily biased to their to a small number of market partici- objective of sending it out to clients,” books. We know that and we discount pants. Another indicator of whether says a source at a technology vendor. the content, so we have said, for us, material constitutes research is the On the face of it, if a bank provides a this is no way substantive. But whether resources dedicated by the bank to buy-side fi rm with material suggesting or not it is research, it is defi nitely not creating the material and analysis. an investment strategy, it would seem something we would pay for,” the If a bank, for example, used its own its intention is to get the recipient to operations manager says. „

waterstechnology.com November 2017 21 Regulation

OUT WITH THE OLD: Australia’s APRA Takes Aim at EFS Data

The Australian Prudential Regulation conomic and Financial of wealth, and look into invest- Authority is overhauling its core Statistics (EFS) data serves ment activities in the country. The E as a sort of health report information that fuels these reports regulatory reporting requirements, for Australia. Compiled by the is provided to APRA by authorized which includes the modernization of the Australian Prudential Regulation deposit-taking institutions (ADIs), Economic and Financial Statistics data Authority (APRA), it provides such as retail banks and credit submissions required from Australian key macroeconomic indicators for unions. After the fi nancial crisis, the country, mainly to help the regulators across the globe realized banks and various other fi nancial Australian Bureau of Statistics (ABS) that they lacked the granular data institutions. Wei-Shen Wong reports on and Reserve Bank of Australia needed to maintain economic sta- the challenges created by the reviewed (RBA) to set economic policy. bility in challenging times. APRA submissions. Trading fi rms can use this data decided to reexamine the informa- to monitor Australia’s economic tion needed to create these reports, growth, create economic forecasts, and on January 18 this year, together monitor for bubbles, gain a snapshot with the ABS and RBA, released

22 November 2017 waterstechnology.com Regulation

The data quality elements of the “Financial firms will have to go back, almost proposed data quality standard and guidance have been combined into to their front-office source systems and a revised reporting practice guide, processes, and if their data attributes actually which is being released for further don’t exist within those systems, they have consultation,” APRA said in its to go back and actually capture some of response. Although fi rms have a longer this information. Some of the classic ones grace period now that APRA has mentioned are loan purpose and mortgage extended the implementation dead- origination systems.” Andrew Wood, line—with the regulator setting AxiomSL an initial implementation date of July 1, 2018—the pressure is still on, especially for larger banks, says Thomas Verlaet, senior product specialist in compliance data and solutions provider Wolters Kluwer’s fi nance, risk and reporting business in Sydney. “For many new fi rms there are the fi rst proposal for a modernized nesses may result in total project reporting thresholds in place, which data collection system for EFS data. costs of up to A$15 million ($11.5 means only larger institutions are After listening to industry feedback, million) to implement all APRA’s impacted. The largest institutions APRA released a response report on proposed changes. will see a signifi cant increase in August 23. The overhaul includes “We have not had suffi cient time reported data points—estimated changes to balance sheet forms, to undertake a detailed costing in to be up to an 80 percent increase fi nance commitment forms, and the fashion requested by APRA, compared to the current regime,” profi t forms, as well as additional however, broadly it comprises A$3 Verlaet says. information for interest rates and million–A$5 million ($2.3 mil- Abraham Teo, head of regula- credit data. lion–$3.8 million) local systems cost, tory policy for the Asia-Pacifi c A$3 million–A$5 million global region at AxiomSL, says this data Cost Concerns systems cost, and A$5 million–A$10 management and governance exer- While these changes will focus million ($3.8 million–$7.6 million) cise will take some time, but will be primarily on banks’ retail arms, it human resource and consulting cost manageable. means that resources could fl ow to build and test the new data col- “Most of this information away from the investment side of lection and fully incorporate it into already exists somewhere in the the institution, or the two sides of these systems,” he said. organization, and it is just a matter the organization will have to work After listening to industry of capturing it, making sense of it on building out more encompassing feedback, APRA decided to pro- and putting it all together,” Teo data platforms. vide more time for ADIs to seek says. In a comment letter respond- resources—both internally and Teo’s colleague Andrew Wood, ing to the original proposals, Tim externally—to adhere to these new country manager for Australia at Sedgwick, country fi nance offi cer reporting standards, while building AxiomSL, adds that “fi nancial fi rms for Citibank Australia, noted that out their systems and establishing will have to go back, almost to their Citi’s local IT budget been locked the necessary controls over data front-offi ce source systems and pro- down well into 2018 with existing quality required, according to the cesses, and if their data attributes business-critical projects. Sedgwick response paper. actually don’t exist within those said that although Citi is a “small “Some of the reporting thresh- systems, they have to go back and market participant,” its dependence olds have been revised upward, capture some of this information,” on multiple global systems across including the requirement to report Wood says. “Some of the classic several reporting entities with retail, on cost/value of funds and margin ones mentioned are loan purpose commercial, and institutional busi- data on the interest rate forms. and mortgage origination systems.”

waterstechnology.com November 2017 23 Regulation

‘Far More Complicated’ reporting compared with Australia’s APRA is working with the industry In Citi’s response paper, Sedgwick adoption of International Financial to address and create more realistic added that the bank believes that the Reporting Standards (IFRS) account- implementation deadlines, and to required data accuracy standard is ing standards, which would typically simplify its requirements. “unachievable,” as it goes far beyond be a three-year project for Australian For example, APRA has elimi- what is required of audited fi nancial fi nancial institutions. nated an element of its original statement information. “We believe “As a foreign bank, for a project of proposal to implement a “backward- that the current proposal fails on a this size, Citi generally needs at least looking parallel run,” which required cost/benefi t analysis, where the ele- 12 months’ advance notice simply to fi rms to resubmit the data they had ments of timetable, accuracy, detail, obtain regional and global planning previously submitted with the exist- and proposed collection methods and budget approvals, for the neces- ing forms, using the new forms. But make the new data collection a very sary staffi ng and IT resources required respondents complained that the expensive undertaking—for indi- to undertake the data collection and six-month backward-looking parallel vidual institutions and the industry as data management aspects of APRA’s run eff ectively moved the implemen- a whole,” he wrote. proposed changes,” he said. tation date from mid-2018 to the start Sedgwick added that the proposals The biggest criticism of APRA’s of 2018. Although APRA has now are “far more complicated” for data original plan from the industry was done away with that proposal, ADIs collection, data management, and data the “unrealistic” timeframe, which will still have to submit a forward-

24 November 2017 waterstechnology.com Regulation

looking parallel run. This means they diff erent things to handle, so having cise due to the signifi cant increase in must submit the old and new report- one source of truth as opposed to the number of data points reported, ing forms to APRA in parallel, or, at managing it in siloes is much better. as the data elements required are the same time. We have lots of divisions currently, more granular. By design, banks The challenge here is being and we are integrating it into one,” are large complex businesses with able to reconcile the information the source says. formalized governance frameworks. and make sure the information The executive adds that while Any changes to products, people, being submitted under the existing the centralized system is already in systems or procedures are required forms and the new forms tallies, place, the bank will only begin test- to go through rigorous review and says AxiomSL’s Teo. “They need ing it for quality next year. approval processes. These multiple to do this for at least four months. And the need to change data checks and balances are to ensure that This is something we are trying architectures doesn’t just impact all the required elements are properly to help our clients with—to come fi nancial fi rms—APRA also intends thought through. The consequence up with a reconciliation tool to be to replace its data collection system, of this is that the change process able to reconcile the old and new to Direct to APRA (D2A), over the can take much longer than would ensure they are reporting consistent next few years. APRA will com- be normally expected. Timeframes information to APRA,” he says. mence industry consultation on the become even more extended if the “For example, if you’re reporting $1 D2A replacement before the end of scope of the works is extensive.” million in assets under the old EFS, 2017, and given the EFS collection And as Wolters Kluwer’s Verlaet [to ensure] you are also reporting $1 implementation timetable, APRA notes, in many cases fi rms still take million in assets in the new EFS.” says the replacement of D2A might a siloed approach to regulatory In the event of any inconsisten- coincide with the fi rst reporting change, especially if the regulation cies between the old and new EFS periods for some of the EFS collec- touches diff erent aspects of their data, APRA is likely to come back tion phases. business, such as risk, fi nance, com- to fi rms with more questions. The A source close to APRA says pliance or operations. parallel run is APRA’s way of ensur- the timeline for the replacement has “We urge the industry to take ing consistency as it migrates to the not been fi nalized and will depend a holistic approach to regula- modernized EFS, but it is a chal- on the regulator’s engagement with tory change and avoid short-term lenge and could take more time and the industry. “APRA is aiming to tactical solutions. By looking at eff ort to reconcile the two, Teo adds. replace D2A and provide APRA and strategic solutions that address mul- the industry with a refreshed and tiple requirements, supported by a Skin in the Game easy-to-use system that meets the common data architecture, banks Many banks contacted by IDM— needs and demands of modern busi- can benefi t from economies of scale, including Westpac Banking ness,” the source says. lower the cost of compliance, and be Corporation and the Commonwealth prepared for the regulatory changes Bank of Australia (CBA)—say they Juggling Regulations which are on the horizon,” he says. support APRA’s proposal and are cur- With new regulations and standards, In March, Wolters Kluwer rently working on making changes to and existing rules under review, conducted a survey on regulatory be compliant with the modernized compliance is a moving target. reporting in Australia. Of more than EFS data collection. A spokesperson APRA will continue modernizing 30 ADIs surveyed, about 75 percent for CBA says the bank “understand[s] and changing its requirements as said they were at that time taking a the importance of meeting our it moves forward, and banks in tactical, partially automated approach reporting obligations, and we will be Australia will have to accept that when it comes to regulatory reporting. working to meet the timelines out- change is now a constant, and ensure With constant updates and lined in the response paper.” they can manage changes moving reviews to regulatory reporting in The head of regulatory report- forward. Australia and worldwide, fi rms can ing at a European multinational Still, there will always be push- no longer rely on manual processes bank with operations in Australia back, and for justifi able reasons. spreadsheets to collect and organize tells IDM that their bank has created In Rabobank Australia’s comment growing volumes of data to report to a centralized system to manage the letter, Adam Maynard, head of the regulators. It’s time to wake up, smell additional data it will have to record bank’s capital management, external all the diff erent regulatory roses and to comply with APRA. “We will and regulatory reporting unit, noted start overhauling and enhancing have lots of diff erent reports and that this is not “a non-trivial exer- their data systems. „

waterstechnology.com November 2017 25 Regulation

Systematic Internalizer Ranks Swell Ahead of Mifi d II

While buy- and sell-side fi rms grapple s the European fi nancial codes for trading venues, October with the reporting obligations imposed industry prepares for the saw 20 banks and investment fi rms A revised Markets in Financial register as SIs. on so-called systematic internalizers Instruments Directive (Mifi d II) to In contrast, before Mifi d II was under Mifi d II, the number of registered go live on January 3, 2018, the pool fi nalized, there were less than a dozen SIs continues to grow. Jamie Hyman of market participants designated as SIs registered. In August alone, 11 fi rms investigates why more fi rms are opting systematic internalizers (SIs) is grow- registered more than a dozen new SIs. in to the designation ahead of the ing larger, a surge in parallel with Registry cooled a little in September increasing questions buy-and sell- with just fi ve new SIs registered, regulation’s January 3 deadline. side fi rms have about how, exactly, to before ramping up again in October. weave SI services into their day-to- Publication dates are monthly, with day operations, an integration that is the latest scheduled for November likely necessary to meet new, tighter 13, as Inside Data Management went to reporting requirements. press, and the last of the year falling on According to public records December 11. maintained by the International The newest batch of SIs Organization for Standardization, includes Barclays, Berenberg Bank, which issues Swift market identifi er BNY Mellon, Bank of Scotland,

26 November 2017 waterstechnology.com Regulation

under the Mifi d II regime, “the implications are an SI really won’t “Whether data vendors can put SI solutions have too much to do, or too much together in time is the big question. I think the exposure in terms of transparency” easiest thing we can do as sell-side firms is once the regulation comes into communicate very clearly that we are an SI force, he said, adding that Standard and very broadly the asset classes that we Chartered plans to register as an SI, and said he expects other sell-side are an SI in.” Nicholas Philpott, Standard fi rms to follow suit. Chartered Bank Matthew McLoughlin, head of trading for Liontrust Asset Management, says a lack of clar- ity around who will be an SI and what type of SI they will be is a key pain point in the buy side’s Mifi d II preparations. He says SIs seem to fall into two broad categories: Commerzbank, Citigroup, DZ impetus behind the recent boost in banks looking to “unwind central Bank, HSBC, ING Bank, Jeff ries registries. But fi rms still lack clar- risk and provide liquidity,” and International, Lloyds Bank, ity around how to handle the new third-party market-makers behind Lang and Schwarz Trade Center, SI requirements, as highlighted by large amounts of trade fl ow, adding Swedbank, Bank Vontobel, Bank a panel of fi ve end users discussing that buy-side fi rms are responsible Zachodni, Wood & Company the challenges they face during the for understanding what the diff er- Financial Services, and Nordea. In last two months of Mifi d II prepara- ent types of SIs are off ering, and fact, not all of these registrations rep- tion, at a briefi ng on Mifi d II held what interactions are appropriate resent complete newcomers: Several in London on October 25, and for each, so they can ensure they are of the “new” registrants are simply organized by WatersTechnology. directing orders to “the right venue banks registering in additional at the right time to arrive at the best countries, such as HSBC France What Do New SIs Do? execution.” or BNY Mellon’s Brussels branch. Nicholas Philpott, director of That responsibility is compli- In addition, there are categories e-commerce at Standard Chartered cated by the fact that there is no of SI registration: For example, Bank, told delegates during the offi cial, comprehensive list of all Berenberg is registered as an SI for Mifi d II discussion that “bilateral SIs and what types of trades they equities only, which speaks to a key trading still has a place after Mifi d handle. “Given the fact that there’s concern raised by fi rms—that it’s II goes live,” because it would be no golden source—so you don’t not enough to simply know whether “unreasonable” and “unrealistic” to know who is an SI in what [markets] or not a counterparty is an SI, but expect many clients to set up trans- and for what [instruments]—that that counterparties must determine parent systems, pull data together, forces a lot of sell-side [fi rms] to opt what type of SI is appropriate for a put it through a rules engine, then in across the board,” because oth- given interaction. distribute it within 15 minutes. erwise, there’s no way for fi rms to SIs are not a new concept; they Under Mifi d II’s standards, if one communicate to clients what type were established as part of the origi- counterparty is an SI, the SI reports. of SI they are, Philpott said. nal Mifi d regulation in 2007, but If both counterparties or neither banks have mostly worked around party are SIs, the seller reports. Counterparty Communication them so far, choosing instead to trade “As a result, I think a lot of sell- Is Key through dark pools, broker crossing side [fi rms] are forced to become Identifying who is or is not an SI networks and multilateral trading systematic internalizers,” Philpott is essential for compliance, because facilities (MTFs). However, Mifi d said. it determines which counterparty II mandates that European securi- Given how many instruments Matthew has the obligation to carry out McLoughlin ties can only trade on regulated will become liquid and how low Liontrust Asset post-trade reporting. Right now, markets, MTFs or SIs, which is the the transparency threshold will be Management that communication is being done

waterstechnology.com November 2017 27 Regulation

mostly via the press, Philpott said, be communicating as clearly as they ting an order into multiple tranches though some vendors are working believe. He said several brokers have that trade on diff erent venues could on solutions, such as SmartStream told him not to worry, because they create confusion about the number Reference Data Utility’s Systematic will be an SI for the types of trades of transactions and subsequent Internalizer Register, a utility his fi rm executes, but adds that this is reporting requirements. developed in collaboration with “not hugely helpful… [because] what “A lot of questions about that, I Deutsche Börse that allows SIs if I wanted to do a slightly diff erent think, are a lot more in the equity within the scope of Mifi d II to share trade than the one I did last week?” space and the fi xed-income space,” the fi nancial instruments for which Luff concluded that come he added, but it complicates matters they off er services. January, it will become “very dif- both in alerting the market toward a “Whether [data vendors] can fi cult” to trade with a counterparty trade but also in transaction report- put [SI solutions] together in time is that isn’t an SI. Even assuming all ing and best execution reporting, the big question,” Philpott said. “I parties are SIs, there still is a lack of when fi rms “don’t know exactly think the easiest thing we can do as clarity on exactly how that changes how [they’re] going to be interacting sell-side fi rms is communicate very the interaction, he said. with these other entities.” clearly that we are an SI and very “Even speaking to the brokers broadly the asset classes that we are themselves, I don’t get a good sense SI Do’s and Don’ts an SI in.” that they know how the SIs are going Stephen Hanks, manager of Mifi d Seemingly simple communica- to work,” Luff said, adding that a II coordination at UK regulator tion can be tricky, though. Matthew regular equity transaction with a the Financial Conduct Authority Luff , a Mifi d II consultant at counterparty one knows is an SI is (FCA), acknowledged the uncer- Henderson Global Investors, under- straightforward, but not all trades tainty during a regulatory address scored that sell-side fi rms might not are that simple. For example, split- at the same event, but warned that

28 November 2017 waterstechnology.com Regulation

of functionality around the systematic internalizers themselves or their internalizer regime,” Hanks said. “But clients, to want to have more of I don’t think we have quite the full their business subject to pre-trade information about how those systems transparency. I think that’s also the will work in practice. I think it’ll be a case when it comes to the Double case of regulators having to look when Volume Cap,” Hanks said, referring these systems are fully up and running to the Double Volume Cap (DVP) and we have more information about on dark pool trading—a particularly exactly how they are confi gured as controversial portion of the Mifi d II to whether those comply” with the rules that limits the use of reference requirements laid out in the aforemen- price waivers and negotiated price tioned revision, he added. waivers when a dark trading venue accounts for specifi c percentages of SIs Key to Pre-Trade total pan-European trading volume Transparency in any given stock. Matthew Luff According to Hanks, a “key aspect” “We are expecting a signifi cant Henderson Global of the systematic internalizer regime number of extensions early next year Investors is to infuse pre-trade transpar- under the Double Volume Cap,” ency into over-the-counter (OTC) Hanks said. “I don’t think that busi- despite any lingering doubts about trading. ness will necessarily fl ow directly which counterparty is responsible “However, for equities and bonds then onto the markets.” to report, over-reporting is not the and derivatives, there are clearly The DVC pertains to a lack solution. thresholds above which trades done of clarity around certain SI rules, “I think it has to be clear that with systematic internalizers do because the SI regime may serve as we do not want people reporting on not need to be pre-trade transpar- a loophole for market participants to a defensive basis,” he said. “We do ent. I think, again, at the moment, recreate broker-crossing networks, not want lots of situations in which it’s unclear exactly what propor- which the Mifi d II regime intended both sides of a trade are reporting. tion of business will be done above to make impossible. People should be making all reason- and below those thresholds,” Hanks “People are looking for alterna- able eff orts to determine whether or said, referring to Mifi d II’s trading tive ways of conducting the trading not the counterparty they’re trading obligation on equities and equity- on a larger scale through a systematic with is a systematic internalizer, and like instruments, where fi rms that internalizer,” Hanks said, acknowl- therefore who has the trade report- account for more than 0.4 percent edging the loophole, and adding that ing obligation. Mifi d II is supposed of trading in a stock are required to right now, the FCA’s plan is to wait to be about improving the quality of register as an SI. and see how it all plays out. trade reporting relative to the exist- “Whether in due course that will In the meantime, as market par- ing position, and if we have a lot of mean that people want to look at ticipants work toward the Mifi d II defensive reporting, then that will standard market size of the equities, compliance deadline while wrestling obviously not be the case.” size-specifi c to the instrument in with the uncertainties of the regime, The other main issue that the bonds or derivatives, we will have to some portions are still in fl ux. The FCA forsees in relation to SIs sur- see,” he said. “But I think certainly, European Securities and Markets rounds the functionality of the that will be something we will Authority, which is responsible for systems people are running,” Hanks know much more about through the developing the technical standards said. “Clearly, most of the large course of next year.” around how SIs will work in practice sell-side fi rms have not wanted to Hanks says that information under the directive, will publish clar- convert their broker crossing net- will determine whether the regime ifi cations following their November works into trading venues. They actually achieves its intended trans- board meeting, Hanks said. wanted to reconfi gure the business parency impact, or whether instead, So for now, in-scope entities are so that it fi ts within the SI category.” trading will evolve and take place in still waiting for answers on the very The FCA has an idea of what sell- new ways. issues they are hurrying to prepare side fi rms plan to do, and provided “Certainly my perception is Stephen Hanks for. And while they wait, increasing Financial clarifi cation in the form of a revision that there isn’t a rush necessarily, Conduct numbers are joining the ranks of that “closes up certain possible avenues either on the part of the systematic Authority registered SIs, just in case. „

waterstechnology.com November 2017 29 Benchmarks

Will Eonia Sink or Swim in Hunt for Euribor Replacement?

The European Central Bank has ntil September 22, when the tracts and were planning the transition intervened to rescue stalling benchmark supervisors of the Euribor process, hardly any headway appeared Ubenchmark rate—the Euro- to have been made in the Eurozone— reform and fi nd a new risk-free rate pean Central Bank (ECB), the European the second-largest interest rate swap for swaps. But a key contender, a Commission, the European Securities market in the world. “They’ve wasted a strengthened Eonia, has suffered from and Markets Authority (Esma) and Bel- lot of time and achieved precious little,” dwindling transaction volumes in recent gium’s Financial Services and Markets said a portfolio manager at a pension years, and the ECB’s new overnight rate Authority—swooped in to take control fund management fi rm in London. of the interest rate benchmark reform Worse, the number of banks submit- is widely regarded as the top contender. project from the European Money ting to the Euribor panel had fallen But it may take a long time for market Markets Institute (Emmi), some swaps to a level where market participants participants to develop confi dence in a market participants were starting to were concerned about the prevailing new reference rate, reports Risk.net’s become exasperated with the sluggish benchmark’s near-term future. And pace of interest rate benchmark reform the most viable replacement, the Euro Chris Davis. in Europe OverNight Index Average (Eonia), While working groups in other cur- was similarly weak. rencies had selected alternative risk-free Just as market participants called rates (RFRs) to Libor for swaps con- on the ECB to step in to prevent the

30 November 2017 waterstechnology.com Benchmarks

transactions, as an alternative RFR in the euro area. Structural changes in the “We all know the drawbacks of Eonia. market have brought the rate’s cred- Because of the regulatory framework and the ibility into question over recent years, very high excess of liquidity in euro money however. Unsecured lending between markets, volumes in Eonia have fallen to banks has been declining in Europe around €10 billion a day for the last year or so. since the crisis: partly due to regula- tory changes, and partly due to the And that doesn’t look like it’s going to change ECB’s ultra-loose monetary policies. anytime soon.” Adam Kurpiel, Societe Transaction volumes used to calculate Generale Corporate and Investment Eonia have consequently fallen. Banking “We all know the drawbacks of Eonia,” says Adam Kurpiel, a deriva- tives rates strategist at Societe Generale Corporate and Investment Banking in London. “Because of the regulatory framework and the very high excess market from “sleepwalking into a situa- out, will be to decide whether a new of liquidity in euro money markets, tion where nobody is submitting to the RFR can eventually replace Eonia volumes in Eonia have fallen to around Euribor panel but there’s no credible without causing severe disruption to €10 billion ($12 billion) a day for the rate to replace it,” the ECB did just legacy portfolios. It wouldn’t just aff ect last year or so. And that doesn’t look that. The regulators will convene a the Euribor–Eonia basis market, which like it’s going to change anytime soon.” new industry working group to iden- has an estimated notional amount of Danske Bank’s Smidt adds that tify an alternative RFR to Euribor for €5.2 trillion ($6 trillion). Eonia is also declining volumes in the unsecured the swaps market, in line with a global widely used as the discount rate to overnight deposit market tracked by push started by the Financial Stability determine the present value of future Eonia is making the rate a much less Board (FSB) that began in 2013 to cashfl ows for Euribor-linked swaps reliable indicator of rates in the cash wean the market off solely relying on collateralized with euro cash. Unless market. “We are seeing an increased the Libor benchmark. Also, using the the new rate matches Eonia exactly, discrepancy between where the fi xing money market data it collects to moni- a move will lead to a value transfer is and what I as a dealer am paid in tor the transmission of monetary policy, between counterparties that could overnight cash,” he says. “We have an the ECB will create a new unsecured trigger legal disputes. Eonia fi xing that is roughly –36 basis overnight benchmark as a backup, or Some say it could take years to points, but I would say –47bp is a more potential rival, to Eonia. properly build out a swap curve based accurate refl ection of where cash is It is not a foregone conclusion that on a new benchmark rate. “If the ECB trading. Volumes are so small now it’s the ECB’s new overnight benchmark makes a new index everyone agrees is almost beyond belief. If one of those will be selected as the offi cial RFR for better or more accurate than Eonia, panel banks decides tomorrow that the €180 trillion ($210 trillion) euro then the problem will be the building of instead of rolling 10 yards in repo they interest rate swaps market, however. a new swap market,” says Eske Traberg are going to use overnight deposits, It will be up against at least two other Smidt, head of global rates trading at then the market would double in size candidates: a strengthened Eonia, or a Danske Bank in Copenhagen. “That and the Eonia fi xing would move new secured rate based on European cannot be done overnight, and it is about six basis points lower.” government repo trades currently being not something I think the market is The panel that sets the Eonia rate is developed by Emmi. Most market par- prepared to do at the moment.” only a subset of this shrinking market, ticipants felt—even in the absence of and the panel itself has shrunk dramati- hard information on its design—that Eonia’s Drawbacks cally in recent years. After German an ECB-created benchmark should Until the ECB’s announcement lender Commerzbank became the be more robust in terms of underlying in September, it had been widely latest to withdraw from providing con- volumes than Eonia. expected that swaps users would choose tributions in July, only 28 banks remain But the dilemma for Europe’s to use Eonia, the prevailing unsecured on the panel—down from 44 in 2013. regulatory authorities now, they point overnight benchmark rate for euro These range from international dealers

waterstechnology.com November 2017 31 Benchmarks

such as Barclays and Deutsche Bank to an industry group assisting Emmi in the from scratch. “Choosing a reformed smaller players like the National Bank review—about whether such reforms Eonia would have the advantage that a of Greece and Luxembourg’s Banque et might make it too diff erent to the cur- basis market already exists for Euribor- Caisse d’Épargne de l’État. However, rent rate. A 2014 report published by the Eonia,” says a London-based portfolio roughly 80 percent of daily transac- FSB-established Market Participants manager. “If not, then we could all tions come from just fi ve panel banks, Group on Reforming Interest Rate be faced with a situation like in the according to research by the ECB’s Benchmarks, found a diff erence of US, where dealers will have to fi rst be money-market contact group. just fi ve basis points could aff ect the pushed to bilaterally trade products in a Much then rests on the outcome of willingness of market participants to market where they are not comfortable a data review currently under way, in transition to a new reference rate. doing so.” which the rate’s administrator, Emmi, “The problem is continuity,” a Danske Bank’s Smidt agrees, will perform an analysis of panel bank source close to the steering committee pointing out it may take a long time transactions from September 2016 to says. “We fear that if the methodology for swaps users to become comfortable February 2017. The purpose of the changes too much, then there could be with an entirely new benchmark. On exercise, part of a two-stage review a legal question about whether it is a that basis, he believes a bolstered Eonia launched by Emmi in 2015, is to new index or a continuation. The new being selected as the new RFR would identify ways to make the benchmark rate would be more or less the same as be the best possible outcome for market more representative of the market it Eonia, but there might be a change in participants. Ideally, he would like to references. According to Emmi, this the level of a few basis points.” see the ECB’s eff orts to develop a new could include eff orts to broaden the On the other hand, a reformed RFR merge with Emmi’s eff orts to Eonia panel, as well as revising the Eonia could be the best option in terms reform Eonia. methodology to include a broader set of of continuity, one swaps user points out. “I think the only viable way for- transactions and eligible counterparties. After all, unlike its two rivals, it would ward is the Emmi-led Eonia reform Yet there is concern on the not be a completely new rate requiring process,” he says. “With a new index, Euribor–Eonia Steering Committee— a new market infrastructure to be built any reasonable trader would have to

32 November 2017 waterstechnology.com Benchmarks

ask themselves how much confi dence and for which purpose, so my view is reporting (MMSR) data, and aims they can have in the new index. For that it would be healthy to have various to fi nalize it by 2020. The bank has example, a few years ago, when we had types of benchmarks co-existing for the been collecting transaction data from capital controls introduced in Cyprus, euro market, be they secured or unse- European lenders since April 2016 as there was a signifi cant risk Euribor cured rates.” part of eff orts to monitor the transmis- could spike. How would a new index In August, Emmi published the sion of its monetary policy decisions behave in a scenario like that? It’s diffi - results of a three-month industry con- to the markets. Market participants cult to know when the rate has no track sultation on the proposed defi nition of expect a rate similar in design and record.” the new repo index and its calculation methodology to the Bank of England’s An Emmi spokesperson says, “At methodology. In a preliminary state- reformed overnight rate, Sonia. this stage we have no views on the ment in December, Emmi said the new “The best data we have in the use of Eonia in the future. Its market rate would focus on anonymous euro- euro market is the MMSR,” says acceptance will have to be decided by denominated alternative trading system Societe Generale’s Kurpiel. “Based the industry in due course.” transactions, which are cleared through on this data, they could potentially eligible clearinghouses. Data published create something similar [to reformed The Secured Option in the consultation shows the under- Sonia], because the technical infra- The same challenges would apply if lying volumes available for Emmi’s structure is the same. In my opinion moving to a rate based on euro repo proposed repo index far outstrips those that’s the best choice.” transactions. Yet swaps users are heart- of Eonia. Emmi noted the feedback was Danske’s Smidt says the new ECB ened by the fact the secured option generally positive, but admitted there rate might be closer to Euronia, the vol- would at least not suff er from the was some concern about using the rate ume-weighted index of unsecured euro same dearth of underlying transaction to discount cash-collateralized euro overnight cash transactions brokered volumes as Eonia has in recent years. interest rate swaps. in London by contributing Wholesale Since the 2008 fi nancial crisis, while Swap users believe discounting rates Markets Brokers’ Association member unsecured overnight lending has been should be based on the interest rate of fi rms. If that proves to be the case, he a declining source of funding for banks, the underlying variation margin. For says, the rate would be much more liquidity in the secured segment of the cash-collateralized euro interest rate representative of the cash market than market remains robust, with aggregated swap trades this should be Eonia, while Eonia in its current incarnation. “If you daily volumes of roughly €250 billion for bond-collateralized swaps, it should ask any bank what they charge traders ($292 billion). theoretically be the repo rate. when they have excess liquidity on “From a purist point of view that Others pointed to the probable basis their trading books at the end of the might be viewed as the best outcome,” between the new repo rate and Eonia, day, they would probably give you a says the London-based portfolio man- which would change an instrument’s rate closer to Euronia,” he says. ager. “That’s where all the liquidity present value in a transition. According There is also a feeling in the is now in the short-term funding to data presented in Emmi’s consulta- industry that the ECB would not markets.” tion paper, the proposed repo rate embark on such a time-consuming Selecting a secured rate would would have tracked roughly fi ve basis and complex exercise to develop a rate also align Europe with other currency points higher than Eonia throughout nobody ultimately uses. working groups such as the Swiss franc much of 2015. “If they are going to do all this and US dollar, both of which have “Repo should not directly replace work and get it ready by 2020, they opted for repo-based benchmarks. Eonia,” says the source close to the are going to want to be pretty sure Market participants have warned frag- Euribor–Eonia Steering Committee. the market will be using it,” says the mentation of the underlying RFRs “Especially while we are still in pension fund manager. “They are could hit the cross-currency basis, for quantitative easing, there’s too large a not going to want to have a situation instance. Although Emmi refrains from quantitative diff erence. But it could be where the ECB has done all of this explicitly backing a rate to become the an alternative.” work and the new unsecured rate new RFR, maintaining that the market doesn’t really go anywhere because itself should decide, it believes the new Europe’s Sonia another rate has been launched based repo rate could serve that purpose. For the time being, the ECB’s pro- on secured transactions. For them to “I think it could be a viable RFR,” posed unsecured overnight rate is still be investing all this time and eff ort, says Petra de Deyne, manager of Emmi’s an unknown quantity. The central I’m sure they will want it to be desig- benchmark governance unit. “It’s up to bank said it will construct the rate nated the RFR and for it to have that the market to decide which rate it uses using its money market statistical credibility behind it.” „

waterstechnology.com November 2017 33 Human Capital Human Capital

TMX’s Sinclair Leads TP Icap “lots of opportunities where we can Data as Desmond Departs expand the number of distribution Interdealer broker TP Icap has channel partners,” he adds. hired Eric Sinclair as CEO of its Sinclair is based in London, and Information Services data and analyt- reports directly to TP Icap CEO John ics division, eff ective November 13. Phizackerley. Sinclair announced his departure A spokesperson says Sinclair’s from Canadian exchange TMX, predecessor, Frank Desmond, decided where he was president of the TMX to move on, but they are not aware of Market Insights data and analytics Naomi Bowman whether he has a new role planned. division, in August. He joined the Toronto Stock BRG Brings Bowman on Board Greg Kozar Exchange’s TSX Datalinx divi- Advisory and consulting fi rm sion in 2003 from Sanchez Wealth Berkeley Research Group (BRG) ment of single-dealer platforms and Management, where he was executive has named Naomi Bowman manag- surveillance systems to third parties. vice president of global sales. Prior to ing director of its EMEA Financial Ip previously spent fi ve years in that, he spent 11 years at Reuters as Services practice in London, where various roles at Thomson Reuters, vice president following its acquisition she will work with senior manage- including as director of the content of Canadian data vendor IP Sharp, ment to lead and grow the division. management group for exchange- where he was senior sales executive. Bowman joins from HSBC, where traded instruments, lead product The merger between Tullett she was COO of global legal. She has manager for Eikon transactions, and Prebon and Icap earlier this year also worked at PwC and EY. At BRG, senior business analyst for the vendor’s created a business with a market Bowman will focus on helping clients electronic trading team. capitalization in excess of £3 billion respond to regulatory change, as well Before joining Thomson Reuters, ($3.99 billion). “You now have the as building legal, governance, risk and Ip was a business development world’s largest interdealer broker, compliance functions. manager at Horizon Software, prior which is an enormous source of She is also an advocate for women to which he spent almost a dozen OTC content, being published by an in leadership and diversity, and in years at derivatives trading platform independent neutral party. For me, 2014 was named national winner of vendor Actant in roles including this is a phenomenal opportunity to the Future Leaders Award by Women product specialist, head of European develop the business,” Sinclair says. in the City. client services, and European delivery Preliminary planning with the “We will benefi t greatly from product manager. fi rm’s executive team has identifi ed Naomi’s extensive market and leader- Based in London, Ip reports to ship experience as we build BRG’s Aquis COO Jonathan Clelland. integrated fi nancial services off ering,” says Daniel Ryan, BRG managing Citadel Data Chief Departs director and head of the group’s After Only 3 Months in Role London offi ce, in a statement. Laszlo Korsos, who left Uber Technologies to join Citadel in July, Aquis Hires Former TR Exec Ip has reportedly left his position as chief to Head Product Team data offi cer at the investment fi rm. European exchange Aquis recently Sources close to Citadel confi rmed hired Adrian Ip as head of project/ Korsos’ departure. product management, a new role Korsos founded Uber’s optimiza- responsible for coordinating internal tion and economics quant team, Eric Sinclair projects, including the delivery of working on pricing algorithms, and matching engines, and the develop- was with the ride-sharing company

34 November 2017 waterstechnology.com Human Capital

Former Lime, Townsend CEO Wecker Returns to for three years. Prior to that role, Goldman Sachs as CDO he worked at Goldman Sachs and Nuveen Investments. Korsos also Goldman Sachs has appointed veteran served in the US Navy and has a PhD data and trading technology senior execu- in economics and statics from the tive Jeff Wecker partner and chief data offi cer, responsible for data governance University of Chicago. Jeff Wecker When Citadel announced Korsos’ and architecture throughout the fi rm. hiring in July, founder and chief Wecker was most recently head of executive Ken Griffi n said the com- front-offi ce transformation at Bridgewater Wecker spent 11 years at Goldman Sachs, pany’s ability to eff ectively leverage Associates, where he spent just over six including stints as head of Asian deriva- big data is critical to its success. As of years, prior to which he was CEO of Lime tives trading and co-head of quantitative press time, Citidel had not returned Brokerage, CEO of Townsend Analytics, strategies. a request for comment on Korsos’ and a managing director at Lehman Based in New York, he reports to John departure. Brothers and Caspian Securities. Madsen, co-head of the fi rm’s technology Before co-founding Caspian in 1995, division, and partner Ezra Nahum. 3di Taps Kozar to Head US Business UK-based data management software Exegy Hires Lansdowne for TickTrade Taps Data Vet vendor 3d Innovations has appointed EMEA, Asia Sales Kennedy for Sales, Marketing market data veteran Greg Kozar vice St. Louis-based ticker plant appliance Toronto-based currency trading, president of products and services vendor Exegy has hired Carlos Lopez predictive analytics and price in New York, responsible for the Lansdowne as sales director for Europe distribution platform vendor company’s consulting and product and Asia, responsible for sales of the TickTrade Systems has appointed business in North America. vendor’s products and services and for data industry veteran Will Kennedy Kozar takes over operational building partnerships to expand its managing director of global sales and management for the Americas from ecosystem. marketing. 3di co-founder Janelle Veasey, Lansdowne was most recently sales Kennedy joins TickTrade from who will retain responsibilities for director for market data solutions (the Canadian data and fi ntech busi- Asia-Pacifi c and Europe, the Middle former Fixnetix business) at DXC ness development consultancy East and Africa. He was previ- Technology (the combination of CSC Collaborative Financial Services, ously an independent consultant, and HP Enterprise), prior to which where he was head of sales and most recently working at Mizuho he was sales director for EMEA and marketing. Prior to that, he was Americas, prior to which he spent Asia-Pacifi c at hardware ticker plant executive vice president of business almost seven years as a data analyst and feed handler provider Redline development at Activ Financial, and at Moody’s Investors Service. Before Trading Solutions, and founded his briefl y served as head of business that, he held various data analyst, own capital markets IT consultancy, development at Exegy. Kennedy was data sourcing and data management Matrix Software Solution. also head of data products at S&P roles at Millennium Capital, General Before that, he was responsible for Indices, head of research sales and Motors Asset Management (now new business in Europe, the Middle business development at ITG, and Promark Global Advisors), the Fox East and Africa at Fidessa, was sales spent six and a half years running his Business Network TV channel, director for Iberia at SuperDerivatives, own independent consulting business, Merrill Lynch, TD Ameritrade, JP and spent seven years in sales and Kennedy & Associates. He was also Morgan, Lehman Brothers, UBS, account management roles at Thomson previously a senior vice president at Salomon Brothers, Bankers Trust and Reuters, prior to which he was a sales Reuters, where he spent 10 years in Goldman Sachs. executive at Bloomberg. New York, London and Toronto. In his new role, Kozar reports to Based in London, Lansdowne At TickTrade, Kennedy reports to 3di CEO Stephen Veasey. Adrian Ip reports to Exegy COO Rod Arbaugh. CEO Baha Ochebol.

waterstechnology.com November 2017 35 Human Capital

tor and chief artifi cial intelligence vendor’s enterprise content and offi cer, eff ective November 20. At distribution business. Pior to that, he Cerberus Operations and Advisory was vice president of strategic account Company (COAC), Afshar will be sales at NYSE Technologies, and responsible for leading development served as director of sales at a number of “a proprietary operations platform of startup technology vendors, focused on artifi cial intelligence and including Tervela. machine learning” that will allow the fi rm and its portfolio companies to New Asia MD Adds Spark to “identify opportunities to leverage Will Kennedy Style data and analytics to drive operational London-based equity portfolio risk improvement, enhance decision- and performance analytics provider making, and create automated Style Research has hired Jamie Spark business insights,” offi cials say. in Melbourne as regional managing Jenny Knott Afshar joined JP Morgan in 2016 director for Asia-Pacifi c. as chief data science offi cer and Spark was most recently head of Knott steps down as NEX managing director, responsible for relationship management for the Optimisation CEO building out the bank’s data science southern region at wealth manage- Jenny Knott, CEO of NEX eff orts across all businesses, and for ment platform provider OneVue Optimisation, the trading and tech- supporting functions of the corporate Group, prior to which he was director nology group’s post-trade division, and investment bank division. of buy-side service provider One is stepping down in the wake of a Prior to joining JP Morgan, Investment Group. Before that, he profi t warning on October 2 that the he spent more than fi ve years as was chief executive of share registry division’s margins were 20 percent, a managing director at Goldman and transfer agency Share BPO, down from 29 percent in May. Sachs, where he was responsible for and COO of fund administration Knott was named CEO of NEX the team that centralized, analyzed, outsourcing provider Fund BPO. Optimisation in 2015. and presented insights from large Spark previously held senior She will be replaced by Ken fi nancial datasets to reduce cost, business development and sales roles Pigaga, formerly NEX COO and a mitigate risk, improve client service, at Republic Investment Management, member of the board. Sam Wren, and maximize profi tability. RBC Dexia Investor Services, and group CFO of NEX, will take over ANZ Custodian Services, prior to Pigaga’s COO responsibilities while Ex-Usam’s Miller Gets Some which he spent almost 10 years at maintaining her CFO role. Options Citigroup in Australia, Singapore and Knott’s departure is one of several Managed services provider Options London, having started his career as by NEX senior executives in the has hired former Bloomberg and a fund administrator at State Street in past year and a half, including a NYSE Technologies sales execu- Australia and New Zealand. CFO, heads of training and market tive Jay Miller as vice president of In addition, Style has promoted CJ plumbing, and two other post-trade sales in New York, responsible for Zou to client relationship manager executives. new business growth and US client for the region, based in Tokyo. Zou engagement. joined the vendor in January as a JP Morgan Chief Data Scientist Miller was previously global consultant, having previously spent Departs for Cerberus AI Role head of sales at Usam Group, an just over eight years at Quant Shop, Afsheen Afshar has left his position outsourced sales agency focusing on most recently as head of marketing as head of JP Morgan’s data sci- the market data and trading technol- and sales country head. ence team to join Cerberus Capital ogy industries. Before joining Usam, Offi cials say having a direct Management’s operations arm in Miller was a strategic sales executive presence in the region opens up new New York as senior managing direc- at Bloomberg, responsible for the Jay Miller opportunities for clients.

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