Sponsored by SmartStream
GC: How did SmartStream RDU become involved in the regulatory data space?
Linda Coffman: It was interesting how naturally regulatory data complimented the product data already supported by the RDU. The original goal was to support a security master – across all asset classes – and then MiFID II came along, and the industry approached us to expand the RDU offering to include regulatory data. We agreed that the utility concept was a perfect fit in the regulatory space.
Aside from supporting the reference data needed for regulatory reporting, the utility has also been a tool used by the industry to collaborate and share data sets. As the industry was struggling to prepare for MiFID II reporting requirements, it became obvious that there was a pain point when it came to identifying systematic internalisers (SIs). From the RDU perspective we also needed the SI status as part of our MiFID offering, so we were in the same boat as everybody else asking “where are we going to get this data from?”. As the deadline approached when everyone was holding their breath, it was becoming more and more clear that we weren’t going to get any help from the regulators and the industry needed to provide a solution.
GC: After establishing the need for the SI Registry, how did you go about collecting the data and delivering it to the industry?
LC: It was really a great experience to watch a collaboration come together within the Approved Publication Arrangements (APA) community. They recognised the issue and definitely had a need in order to provide services as an APA. This need led to a partnership with RDU to provide a technical perspective. Our technical platform receives the SI data from the APAs and we aggregate, cleanse and distribute it back out to the industry in order for users to identify who is an SI. Having a single place to identify this has been critical for MiFID reporting.
There is no other platform where the SI contribute data, which is then sent to others in the industry, so this is the primary source for SI data. You hear nightmare stories about firms calling their counterparties to find out whether they are an SI, which leads to a large manual effort. To avoid that kind of craziness, the SI Registry is a place they can go to get the data. Overall, it is about giving the industry a solution in a time of need.
GC: The next milestone on people’s agenda is SFTR, what are the reference data challenges with this regulation and how is the utility model primed to help?
LC: With (Securities Financing Transactions Regulation) SFTR, some of our existing clients – and some new ones – reached out to say that the utility would be the right fit because there will be a need to source from multiple providers and a need to enrich the data with derived values.
After speaking to many in the industry, their biggest concerns are specific to two fields that need to be reported – security quality and security type. Then there is the added complexity with SFTR of reconciliation between counterparties. In an area where you need multiple sources to derive a field, there is a lot of concern in the industry that reconciliation will be a hard mountain to climb.
From a reference data perspective, the number of fields is small compared to MiFID II but the complexity around sourcing and deriving the needed values is where we are focused. We are looking to get clarification from the regulators and push the discussion so that everyone in the industry gets some clarity and standardisation around what they need to be reporting.
How does the industry readiness for SFTR compare to preparation for other regulations?
LC: In the SFTR space, it looks like firms are paying attention to reference data, but they are more focused on building the technology to interact with the trade repository, understanding which fields they need to reconcile, and deciding whether to integrate with a third-party for reporting. When you look at the number of fields it is on the smaller side, but entitlement, sourcing and the logic needed to derive the data is going to start to become a hot topic very soon.