MarketAxess Acquires Deutsche Börse Regulatory Reporting Estate

MarketAxess has secured the takeover of Deutsche Börse Group’s regulatory reporting businesses—Regulatory Reporting Hub, Approved Reporting Mechanism (ARM) and Approved Publication Arrangement (APA)—for an undisclosed amount. The deal was undertaken through Trax NL B.V., the market operator’s Netherlands-based reporting subsidiary.

MarketAxess will acquire Deutsche Börse’s entire log of client contracts and obligations, extending into new markets across Germany, France and the Nordics. Over the next 12 to 18 months, the bourse’s clients, which sources said numbered around 500, will be migrated to MarketAxess’s suite of post-trade reporting services. MarketAxess is not acquiring any of Deutsche Börse’s tech in the deal, and will not be integrating the RRH technology stack. 

Chris Smith, head of post-trade services at MarketAxess, says the firm will roll out a client outreach program in the next few months to help its new customer base transition to the firm’s reporting services. MarketAxess will be working with the German exchange to mitigate reporting disruption and avoid a drop-off in service throughout the migration.

“We are going to work out comprehensive migration plans for each individual client to understand their needs, who they report to, which obligations they have to meet—are they Emir [European Market Infrastructure Regulation] clients, or are they ARM or APA clients—as of course they all have slightly different requirements and obligations,” Smith says.

The Hub is a compliance platform that enables sell-side and buy-side clients, corporates and regulated markets to meet their reporting obligations under the Markets in Financial Instruments Directive and Regulation (Mifid II/Mifir). Its list of services includes transaction and trade reporting, best execution, systematic internalizers services and delegated reporting for Emir through its APA and ARM.

As part of the transition process, MarketAxess will be building out technical enhancements to the MarketAxess platform, including connectivity to new national competent authorities such as the Dutch, German and French regulators. Smith says there is a strong overlap between MarketAxess and Deutsche Börse’s services, but he does not rule out the potential need for translation layers or additional help to onboard the new clients.

One of the biggest challenges, central to the takeover, will be the migration of all historical and client data. To help with this, MarketAxess recently appointed Tim Hooley, formerly of Red Hat, as the new head of technology for Europe, the Middle East and Africa and Asia-Pacific. Hooley will work alongside Smith in developing tools and solutions to help with transferring the data.

“He has really exciting ideas about using some pretty well-established tools that help other industries transfer and translate data. We’re going to be working with our colleagues at Deutsche Börse to ensure that we move that data over to our system so that clients have a full history of the data they’ve reported, regardless of whether it was originally reported using the Regulatory Reporting Hub or through MarketAxess,” Smith says.

Deutsche Börse’s teams and technology will remain in operation throughout the transition window until the service migration has been completed. The exchange declined to comment further on what will happen to the RRH unit after this period. A spokesperson for the bourse says MarketAxess was chosen to take over the reporting businesses because of its expertise in regulatory change. “We also believe that the breadth of its portfolio, which includes reporting, transparency and matching solutions, as well as APA and ARM services, makes it the right partner for our clients,” they add.

The Deutsche Börse transaction, which is subject to regulatory approval, is expected to close in the fourth quarter of this year. MarketAxess hopes to receive approval in the next eight weeks.

Early Signs

In June, WatersTechnology learned that the German exchange was preparing to offload its reporting unit and was scouting the market for suitable buyers.

“The Regulatory Reporting Hub will not be part of our core portfolio in the medium term, and we are currently evaluating different options,” a spokesperson for Deutsche Börse confirmed at the time.

The latest move follows CME’s decision, revealed in May, to scale back its Abide Financial and NEX Regulatory Reporting businesses, as well as its European and Australian trade repositories by November 30.

One market structure analyst says there is a clear shift among exchanges to offload regulatory reporting units because they are not central to their business models. They add that bourses are better poised to build out data services or extend their footprint in other markets.

“When it comes to reporting, I can’t see that being a core business that exchanges will want to be in. I think the regulatory burden associated with it isn’t worth the hassle,” they say.

Sources have previously told WatersTechnology that the decisions by CME and Deutsche Börse to sell off the reporting entities emerged as a result of pricing wars and unprofitable business models. Incumbent regulatory reporting firms such as these have competed aggressively on prices to vie for market share, provoking “a race to the bottom”, they say.

Smith says he hopes that these unsustainable models will soon die out.

“I know it’s been said that there has been a sort of race to the bottom, in terms of offering services at below or almost cost price just to win market share. It’s not my view, but even were it true, I do not think that will continue over time. I think firms more than ever appreciate the support of their vendors and their suppliers in ensuring that the regulatory reporting they have to do is done well,” he says.

With fewer players in the market and more consolidation, some say increased pricing in regulatory reporting will occur naturally.

“This move is a sign of further consolidation in the trade reporting market. Inevitably, reduced competition is likely to lead to further pressure on prices, which started when CME departed the market. However, there’s also a real opportunity for other players to expand their existing services into the ARM and APA space, and as such to increase competition. Over time this will drive competition, enhanced service quality and new technologies,” says Ronen Kertis, chief executive of regulatory reporting provider Cappitech.