Navigating CME’s European and Australian Reporting Retreat

Here are the facts: 

  • CME announced on Friday evening that it is shutting down the EU and Aussie trade reporting divisions.
  • US and Canada operations will continue as normal.
  • CME says this covers activity across the CME ETR (European Trade Repository) and Abide environments.
  • The current sunset date Nov 30, 2020.

So what does all of this mean? 

The important takeaway for the EU is that a low-cost provider just threw in the towel. CME ETR had a really great run in Europe. They managed to gain 38% of the EMIR reporting. By all accounts, that’s a successful business.

So, why shut it down? Why not sell it off? The statement from CME is a bit vague, leaving some of us speculating and reading tea leaves: “This decision follows an evaluation of our Regulatory Reporting business portfolio following the acquisition of NEX Group in November 2018 which determined it no longer aligns with the strategic direction of CME Group.”

Rationalization is almost always about talent allocation

Are you going to use your best talent for low growth, low margin business or repoint that talent into higher value areas. Rationalization is a major topic right now, especially during the current global crisis. We’ve discussed it on our blog

Europe is the most rapidly changing and demanding regulatory environment. CME has an exceptional team. Perhaps CME began to ask itself whether the expenditure of talented employees and legal staff when the EU repository is such a low-margin business was worth it? Especially when legal fees can explode with uncertain market events like Brexit.  CME could have sold it off.  But without the key people its not worth very much.

Low Margin? Really? 

Yes. It’s a race to the bottom. In any market, when there is no meaningful difference between products, or when there is no meaningful advantage to a product, the market will eventually become a race to the bottom. Think about it. We are all handing over lots of money to Zoom, MS Teams, and Webex and then along comes Google making this free for everyone. Classic race to the bottom.

Things have progressed massively from the “custom trade reporting days.” True to form, BroadPeak has been able to build a lot of technological efficiencies into the regulatory reporting process (and we are not alone). This naturally drives down cost. The Repositories? They only get a little cost reductions through technology, since the huge cost centers are high subject matter experts and legal staff.

There will be a lot more to come on this topic, so stay tuned. If you are not an existing K3 customer in EMIR, of course we would be happy to discuss migration strategies. 

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