The key theme of the on-going overhaul of financial markets, and derivatives trading in particular, on both sides of the Atlantic is transparency. In response to the opacity of the derivatives products at the centre of the financial crisis, regulators are working on a raft of new rules that will give them better oversight of the markets. Consequently, institutions in the financial ecosystem are gearing up for the changes which lie ahead and this is creating massive opportunities for IT system providers such as Sungard. Exchanges, multilateral trading facilities (MTF), clearing houses as well as banks, brokers and traders have to adapt their IT systems to comply with the new regulatory environment.
At A Glance: EU Plans For Trading Overhaul, published in City A.M. on 09 December 2010, summarises the regulatory changes to derivatives trading proposed by the EU. Each category of regulation – market structure, pre- and post-trade transparency, data consolidation, commodity derivatives markets, transaction reporting and supervisory issues – opens up new market opportunities for Stream Ubix, Sungard's real-time and flexible back-office system for listed derivatives providing global clearing for multi-entity companies. I will attempt to highlight some of these below:
Market Structure
- The movement of derivatives trading from over-the-counter (OTC) to clearing houses, exchanges and MTF would potentially increase the type and volume of transactions on the platform.
- The increased powers of supervisors to intervene and demand detailed information from holders of contracts makes the delivery of up-to-date information in real-time even more imperative.
- Increasing the regulatory requirements for MTF to bring them in line with exchanges could open up their trades to Stream Ubix, assuming this is not the case already.
Pre- and Post-Trade Transparency
- Barring the remainder or stub of an order sent to dark pools from remaining in the dark could make the data accessible.
- The requirement for real-time reporting of post-trade share prices, reducing the deadline from three minutes to one minute, could drive more business to the platform with Stream Clearvision providing straight-through-processing.
- Extension of post-trade reporting rules to cover more asset classes would also benefit Stream Ubix, with Fame Futures providing the data feed.
Data Consolidation
- Amending MiFID to require executed transactions to be reported through an approved venue might also have implications for the structure and format of the reports; Stream Ubix's flexible report customisation through Report Writer would minimise the cost and effort required to make the changes.
Commodity Derivatives Markets
- The obligation for traders to report positions by categories would make full use of Stream Ubix's intraday open positions feature.
- The requirement for central clearing of off-exchange, physically settled contracts which are similar to exchange traded contracts and standardised would allow them to be managed on the platform.
Transaction Reporting
- Widening transaction reporting to supervisors to all financial instruments traded on platforms would also potentially increase the type and volume of transactions processed on Stream Ubix.
Supervisory Issues
- The mandatory recording of client orders for a minimum of three years would benefit from from the platform's Oracle-based, modular structure, with transaction data exported to external database management systems.
The final regulatory changes remain unclear and certainly, there are several competing financial software providers such as Portware, GoldenSource or GlobeOp which are positioning themselves to take full advantage of the changes. Nevertheless, SunGard are in a great position to leverage the strengths of Stream Ubix and the entire Stream platform, providing visionary leadership and technological innovation in the front-, middle- and back-office processing sector.
