Swap market participants begin using the service in increasing numbers

Since the Derivatives Service Bureau (“DSB”) entered production on 2 October, the DSB has witnessed a steady rise in registrations, with rising numbers of firms looking to be on-boarded in time for the start of MiFID II on 3 Jan 2018. Given the DSB’s status as a new OTC derivatives market infrastructure utility, the DSB is publishing this report to inform the industry of its progress and performance and to inform market participants of timelines for guaranteed on-boarding before MiFID II go-live.

Rising Interest for Connectivity

As the industry’s first fully automated OTC derivatives reference data utility, there has been strong and rising interest for programmatic connectivity from swap market participants. Activity amongst technology vendors has also been strong, with many referring their own end-users to the DSB to discuss the best user model for each, including the use of the DSB’s free open-data.

In the first month of operations, the DSB has received executed contracts from 29 firms for programmatic connectivity, representing the majority of top-tier US and European swap dealers as well as some buy-side and trading venues. This pace of on-boarding is ahead of original expectations and with two months remaining to the end of the year, the DSB expects total numbers opting for programmatic connectivity to be at least the original projection of 100 contracts.

“The initial operations of the DSB have run smoothly, showing no issues with the platform, nor our capacity to onboard new programmatic users within five days,” said Sassan Danesh of the DSB management team. “However, anticipating a continued rise in applications for connectivity, we strongly advise incoming programmatic users to submit their executed contracts by Tuesday 28 November as the DSB will guarantee production on-boarding for all such users by Monday 18 December.”

Registration for web search and file download have also been rising, with many users seeking information on the free to use end-of-day file download. Currently 90 market participants are using the DSB’s web GUI for ISIN creation and search, with another 700 in the DSB testing environment.

Interactions with users have also been steadily growing. Non-technical interactions through the DSB Secretariat have almost tripled from 30 queries a day in July, to 80 a day in October, with no sign of slowing. Technical support, which assists with connectivity and onboarding processes, has also experienced a similar growth in interactions.

Creation of OTC Derivatives Reference Data

The DSB is unique in providing a fully automated reference data service for OTC derivatives with reference data creation based on user interest. The initial group of users on boarded in October, have focused on Equity derivative instrument reference data creation, with additional instruments created for Credit, FX and Rates. As of 3 November, the following numbers represent the current archive of OTC derivative reference data:

• Equity – 116,014
  ·       Rates – 13,017
  ·       FX – 10,056
  ·       Credit – 1,848
  ·       Total – 140,936

Performance and Resiliency

In the first month of operation, the DSB has met all its performance and resiliency targets, including surpassing the 99.9% availability rate of the Service Level Agreement (SLA), with zero outages in production. Similarly, the performance of the system has surpassed the 1000ms requirement of the Latency SLA, with the DSB processing 99% of all requests within 230ms.

“The resiliency and performance of the system was originally scoped for meeting the end of day reference data reporting requirements of MiFID II,” said Malavika Solanki of the DSB management team. “However, we have received rising interest from swap dealers to integrate the DSB into their critical front office trading flows and therefore we have designed the DSB to the much higher performance and resiliency requirements of real-time trading flows.”

Ongoing Developments

Additional product templates and updates for more complex OTC derivatives are being released on a near-weekly basis, with the current 49 products in production expected to be supplemented by an additional 34 products across all asset classes, including many exotic, non-standard products.

The DSB is also providing integration with European Securities and Markets Authority’s own instrument reference database, in order to provide market participants with the unified view of market and regulator instrument data that is required for determination of ToTV (Traded on a Trading Venue). Revised specifications and samples have already been released to allow industry preparations. The DSB will be hosting a webinar on this topic on 17 November, with speakers from ESMA and the DSB providing the latest information.