Deutsche Börse Eyes Data Synergies from RFQ-Hub Stake

Deutsche Börse will look to drive synergies from its recent minority investment in Investors Derivatives Solutions, a provider of over-the-counter trading software, to provide broader solutions for pre-trade price discovery, post-trade reporting and processing, and transaction cost analysis, officials tell Inside Market Data.
The exchange invested an undisclosed sum of between €1 million and €10 million to acquire an unspecified minority stake in Paris-based IDS last week, partly driven by the opinion that the European Commission's ongoing review of the Markets in Financial Instruments Directive will yield opportunities for vendors to provide solutions that help firms comply with any additional regulatory requirements, officials say.
"Looking at how the MiFID review will impact the world of OTC derivatives, we have been asking ourselves what the requirements would be to demonstrate best execution, and for trade reporting," says Brendan Bradley, global head of product strategy at Eurex, who joined IDS' management board as a non-executive director as a result of the investment.
IDS' flagship product, RFQ-Hub, allows buy-side investors to request and compare quotes from competing brokers with whom they maintain relationships, while automating aspects of their workflow "by sourcing order information directly from their order management system, comparing quotes and executing orders, and feeding trade confirmations into trade data repositories and other systems for straight-through processing," Bradley says.
Because RFQ-Hub specializes in illiquid, niche markets where reliable data can be hard to obtain-including OTC-traded instruments such as variance swaps, other equity derivatives, convertible bonds and basket trades-Bradley says that Deutche Börse sees potential to expand the platform's client base by strengthening the analytics and data services already available, and potentially launching new services that utilize resources from the exchange. "If you can build up critical mass on a given platform, then that platform will have its own validity as a data source because it will include certain types of trade information that might not be quoted or transacted anywhere else," he says.
In addition, Bradley says there are "very few transaction cost analysis platforms for equity derivatives... [that] show the true costs of certain transactions," and he foresees the possibility of complementing the OTC quote data that users can request via the platform with data sourced from Eurex, and potentially other exchanges. "For plain vanilla equity derivatives and basket trade transactions, I could envisage being able to compare broker quotes with exchange order-book data to help assess the quality of those quotes," he adds.