OTC infrastructure service of the year: UnaVista

Risk Awards 2020: LSEG platform seals dominance in battle for European trade reporting

Mark Husler, UnaVista

But for the rapid intervention of UnaVista, the London Stock Exchange Group’s reporting and reconciliation platform, UBS would have been prevented from reporting derivatives trades to its local regulator this year.

The bank’s main corporate entity had taken the decision to shift its local operating unit – a registered issuer of legal entity identifiers – to a new provider. LEIs are the unique codes applied to individual firms so that regulators can better monitor their exposures to other counterparties.

Under Switzerland’s Financial Market Infrastructure Act, its ruleset governing derivatives reporting, shifting the local operating unit would render it ‘pending’. In turn, that would mean “everything faced being rejected”, says John Cummins, head of Switzerland’s SIX Exchange Group’s trade repository, which licences UnaVista’s trade reporting software and support services.

Because the entity concerned was UBS’s Swiss holdco, responsible for regulatory reporting on behalf of many of the bank’s overseas entities, almost all of UBS’s major trading businesses from London to Sydney faced having their trades rejected too, says Cummins.

SIX had been able to perform a temporary patch to its systems to avert disaster for UBS, but knew it might not be enough, Cummins says. UnaVista was able to quickly step in and fundamentally change the system’s logic, so that UBS could continue real-time reporting and stay in compliance.

“Obviously, [UBS] were reporting a massive amount of trades in real time. We managed to perform a hot fix, but without the level of support UnaVista were able to give us, we would have had a big issue,” Cummins says. “What’s critical in such a situation is having a client- and solution-oriented mindset, and having the agility to prevent major incidents before they materialise.”

Banks large and small say that attitude has helped UnaVista comprehensively win the battle to dominate European trade reporting: the platform has a 75% market share of Mifir reporting by volumes and is vying for top spot in Emir reporting, counting eight of the top 10 banks and 15 of the top 20 buy-side firms among its clients across both rulesets. Mifir and Emir are bodies of European Union regulation affecting derivatives reporting.

The last 12 months have seen a spike in large penalties for data reporting breaches. UK regulators fined UBS and Goldman Sachs a combined £69.9 million ($90 million) within days of each other in March – bringing the total levied by authorities for Mifir-related breaches to $139 million.

As the daily recipient of some 200 million data records representing 50 million business transactions for 50,000 users across 86 countries, UnaVista is in a position to try and transform a compliance exercise into something that provides value to clients.

Mark Husler, UnaVista’s chief executive, says: “As the regulatory cycle has slowed down, we now see our role in the industry changing. We’re leveraging the size of our community, and the quantum of data that we’re the custodians of, to help our clients comply with their own requirements. That gives us an opportunity to work with customers to innovate new services that add value: best execution, insights into compliance and surveillance and the like.”

One such area is in improving market abuse alerts. UnaVista’s analysis indicates that more than half of market abuse alerts generated by firms are either due to inaccuracies in their transaction reporting data or internal complex booking processes that may require the underlying transaction reports to be altered.

The firm parses the client trade data using artificial intelligence to identify particular patterns that might be concerning to a compliance department. UnaVista benefits from having state-of-the-art market surveillance software from its exchange arm, combined with the brainpower to make sense of it; most of its market monitoring team are plucked straight from the regulator.

When clients engage in data transformation, says Husler, errors can occur that might result in the front-office record not being fully reflected in the data submitted to the regulator. When UnaVista started such checks with one particular client, the firm identified two flawed rules that meant the client was inaccurately transcribing data. Within a few days the client was able to amend those rules, improve the quality of current data, and identify how much historical data needed to be corrected. UnaVista then relayed the corrected transactions back to the regulator.

Husler credits this success to having the foresight some years earlier to combine reporting capabilities on the same platform responsible for LEI and international securities identification number (Isin) assignment.

“I would say the biggest challenge in the industry and the whole topic of reporting is still reference data – whether that’s LEI codes or Isins, or unique trade IDs. Every regime is slightly different: each has local jurisdictional flavours in terms of mandatory or optional reference data,” he says.

“We are in a very fortunate position in that we built the business initially as a reference data platform, and then moved into regulatory compliance. So all of that capability in terms of assignment and maintenance of reference data is on the same technology as the reporting platform, which I think is in hindsight was a very good decision.”