The Polish trade repository (TR) KDPW has ceased to offer services under the European Market Infrastructure Regulation (EMIR) in the UK after a deal to divert business through an on-shore partner fell through weeks before the Brexit deadline.
The Brexit transition period ended on 31 December 2020, at which point entities trading in over-the-counter derivatives in the UK had to report their activities to a TR licenced under the UK’s version of EMIR, which then files that data with the Financial Conduct Authority (FCA).
EU TRs with clients trading in the UK had three options: set up a separate UK TR, partner with a UK TR and white-label their product, or partner with a UK data provider that could act as a proxy to manage reported data on the TR's behalf.
KDPW is a longstanding EMIR TR and has offered services under the Securities Financing Transactions Regulation since July 2020. It continues to offer TR services under these regulations across the EU.
In response to Brexit, SFT understands that KDPW initially applied to the UK regulator for a UK EMIR licence before pivoting to join forces with an onshore TR instead.
In September, KDPW told SFT it had completed negotiations and “will soon be signing a contract" with a UK TR. "Clients of our TR who trade both in EU27 and UK will then be in a position to report trade on both markets within a single system,” it added.
However, earlier this month KDPW confirmed the deal did not come into effect after negotiations broke down in December.
A source familiar with the matter tells AST that with only weeks to go before the deadline, several KDPW clients were known to be shopping around for a UK TR to take their derivatives transactions data.
Of the four TRs licenced under EMIR by the FCA, the Depository Trust & Clearing Corporation and REGIS-TR UK denied being on the other end of the failed deal.
UnaVista declined to comment.
ICE Trade Vault Europe did not respond to questions.
KPDW tells SFT it has not ruled out resuming its UK service at some point.
In terms of clients and volumes, KDPW is among the smaller TRs in operation and it is unknown how many of its predominately EU clients operate in the UK.
According to the TR, its client roster grew in 2020 as it welcomed three refugees from the closure of CME’s TR operations. The trio of data aggregators came on board alongside nine other new clients in the second half of 2020.
The former-CME clients together account for nearly 200 new financial and non-financial counterparties in Cyprus, the Czech Republic, Germany, Spain, Slovakia, France, Austria, Croatia, Luxembourg and the Netherlands.
The number of EMIR reports the TR received increased by 25 per cent quarter-on-quarter in Q4 2020, and nearly tripled year-on-year, rising from 56 million to 167 million, KDPW says.
The TR ecosystem has shrunk steadily for several years with CME and Bloomberg among those that found the business model unsustainable, sandwiched between razor-thin margins and mounting infrastructure costs.
REGIS-TR remains safely nestled in the Deutsche Boerse universe and can offer its services as part of a wider suite of post-trade services under Clearstream.
UnaVista enjoys a similar existence as part of the London Stock Exchange Group.
KDPW is the only TR to simultaneously operate as a central securities depository, which allows it to share resources across the organisation and keep the TR’s operating expenses under control, according to its CEO Maciej Trybuchowski.
“This is why fees charged by KDPW can and will remain competitive,” he told AST last year.
“Like other trade repositories, KDPW is investing to align its systems and processes to any regulatory amendments,” he added. “With frequent regulatory changes affecting IT systems, the operating expenses of all trade repositories are rising while margins remain relatively low, forcing smaller TRs into marginal profitability.”
Commenting in September on the likely effect of Brexit, Trybuchowski predicted it will inflate reporting costs for clients who operate both in EU27 and UK.
