MarketAxess Eyes European Post-Trade Possibilities With Xtrakter Deal
MarketAxess, an operator of a U.S. electronic fixed income exchange, is looking to better position itself ahead of upcoming bond market regulations in Europe with the purchase of Xtrakter, a European post-trade services group.
Xtrakter, which offers regulatory transaction reporting, financial market data and trade matching services to the European securities markets, is owned by clearing house Euroclear and MarketAxess is paying $42 million to buy the company, subject to regulatory approval.
The acquisition will significantly expand MarketAxess’s position in Europe and the deal is expected to close some time in the first quarter of next year.
“Although people think of us as an electronic trading platform in the fixed income credit space, we always see our business as having three legs to it,” Jim Rucker, credit and risk officer at MarketAxess, told Markets Media.
“One is market data, two is trade execution and three is straight-through processing capabilities. When you look at the Xtrakter business, it really ticks two of the three boxes—market data and straight-through processing.”
New regulatory rules in Europe, in the form of MiFID II, which promises sweeping reforms to Europe’s financial markets following the credit crisis, is set to bring in greater transparency to the region’s bond markets, including a long-awaited consolidated tape or system of record for the market so that market participants can have an easily accessible and transparent view of the market to understand whether or not best execution requirements have been met.
The latest draft of the MiFID II proposals, which is likely to become law in either 2014 or 2015, is advocating a commercial competitive approach to the development of a European consolidated tape in fixed income and other asset classes.
“The regulatory landscape in Europe is changing, which we think Xtrakter is very well positioned for,” said Rucker.
“MiFID II as it is currently drafted is going to require greater transparency in many markets, including fixed income. There is the concept of approved publication arrangements [a market infrastructure mechanism for collecting and publishing market data] and also a consolidated tape provider.”
The European Union’s central securities depository regulation, in accordance with the European Central Bank’s Target2-Securities initiative, is also aiming to harmonize and shorten the settlement system across Europe from three days, or T+3, to T+2. This development is likely to be brought in before 2015. Again, Xtrakter’s business is expected to benefit from the regulatory changes.
“Xtrakter is well positioned to play a key role in the U.K. and other European markets as regulators look to reduce trade settlement risk and increase market transparency under the proposed MiFID II mandate,” said Rick McVey, chief executive of MarketAxess.
McVey added: “Xtrakter is a strong fit with our business and provides MarketAxess with an expanded set of services that are highly complementary to our core strengths in electronic trading, market data and straight-through processing solutions for the global credit markets.”
CEDX opened on 6 September, offering contracts on Cboe Europe single country and pan-European indices.
The MOU covers certain security-based swap dealers and participants.
Equity underwriting on European exchanges rose 70% in the first half.
The analysis is based on transactions publicly reported by 30 European APAs and venues.
A similar service is available on the BIDS platform in the US equity market.