MarketAxess' Trax to Begin Industry Testing for New SFTR Tool

Trax, a subsidiary of MarketAxess, will be ready to start testing a platform that can generate a unique transaction identifier (UTI), a key requirement of the Securities Financing Transactions Regulation (SFTR), starting next month.

“People have not resolved how they can deal with sharing or generating of the UTI; generally, it is more on the sharing side of the UTI, they have not worked out a solution,” says Sunil Daswani, who looks after business development for securities lending and repo fintech at Trax.  

One of the requirements for the regulation is for both counterparties to use the same unique transaction identifier. The problem is that when a trade is taking place involving two systems, each system creates its own reference number, Daswani explains. Esma wants a single reference number for both sides of the trade.

George Bollenbacher, head of fixed income research at Tabb Group, says that because there’s limited automation in this space, generating a UTI can be tricky.

“These are largely over-the-counter transactions,” he says. “That means that we have two parties who are booking the trade independently, and they have the potential to be putting in a different UTI between the two of them. That has been a problem with UTIs across a lot of the European regs that two parties to a transaction regard it as their own, in-effect, transactional identifier.”

Daswani says that the purpose of their UTI portal is to not only allow for the generating of the UTI, but also to provide the ability to share that with counterparties; so it basically performs an automated look-up function on certain key fields of data. 

“There is up to 44 fields that we have used in the UTI portal, which we allow both sides of the trade to input those fields and then the look-up is based on that to find the trade or the transaction to match, or to do pairing to bring up the UTI reference number,” he says.  

But there’s still work to be done, as Esma still needs to provide clarifications around SFTR, which will go live in the first quarter of 2020, and will likely provide clarifications and make changes up until December.

“Right now the ISO 20022 [standard] says [the UTI] should be 52 characters long, but the regulator, if you look at their request as to how it should be created, it would be 60 characters,” Daswani says. “Now the [Trax] UTI portal, effectively, when you send a transaction in, it is looking for another transaction that matches the information so that we can share the UTI. It does a lookup on 44 pieces of information on a transaction to find the UTI, which will be 52 or 60 characters long.”

He continues: “So the UTI is made up of a string of characters which could be 52 or 60. So once the regulator and the industry work that out, it will be, say, 52 characters. Then the two parties who do the trade, they need to share the UTI. Through the [Trax] UTI portal they can do the UTI of the trade they have done with their counterparty on 44 different pieces of information [out of a possible 155 fields] on that trade to find the UTI.”

He adds, though, that the regulators have been listening and have created open forums for discussion.

Next Stage

While the UTI generator component has been built, the connection with the trade repository still needs to happen. In August, the UTI portal will have the ability to submit information into it, so people can start testing it. The next step will be to connect with the different trade repositories, which will start in September and is expected to be finished by the end of Q3. Once this is completed, it will allow for full end-to-end testing.

“We need to know exactly what it is that they want and the information that they need, and that has not even been confirmed yet under the RTS [regulatory technology standards] by the regulator,” Daswani says. “So until the regulator confirms what it is that they want, the trade repositories cannot confirm what they want. So if you think about building a file format that feeds into another on a one-for-one basis for a field, you can’t do that if you don’t know what the fields are yet. It is still to be determined, so the final pieces of information that the trade repositories need are not confirmed yet. Until they are by the regulator, and then by the trade repository, only then can we build a file format to connect with them, because then we know what they want.”