Bloomberg is raising the price of its Regulatory Reporting Hub (RHub) services by introducing a new flat fee and price range for a higher reporting threshold, WatersTechnology has learned.

The pricing model revamp will apply to a group of consolidated services under RHub, including Bloomberg’s original regulatory reporting offerings and the acquired RegTek Solutions product line. RHub supports reporting covering regulations such as the revised Markets in Financial Instruments Directive (Mifid II), the Securities Financing Transactions Regulation (SFTR), and the Trade Reporting and Compliance Engine (Trace) in the US. Following the RegTek acquisition in August 2019, its coverage has expanded to other regimes such as the Markets in Financial Instruments Regulation (Mifir), the European Market Infrastructure Regulation (Emir), and Dodd–Frank. The new business model brings these services together under the one roof, as RHub.

The new annual flat fee for using RHub solutions will range from $25,000 to $50,000. In the former commercial model, clients were charged solely on the volume of transactions they reported. In the revised price plan, all clients will have to pay a new standard fee, the original volume charges, and a newly introduced threshold fee if the client reports above a certain amount. Users of Bloomberg regulated entities, such as its Approved Reporting Mechanism (ARM) and Approved Publication Arrangement (APA), will still pay a separate cost of anything up to $30,000, which is calculated using a metering structure or on a per-volume basis.

“Clients could see the impact of the base fee and the metering if they exceed the metering threshold they set in their contract, at contract renewal, but for clients who are below the threshold, they will only see the flat fee adjustments,” says Brian Lynch, global head of regulatory reporting at Bloomberg, who attributes the increase in RHub fees to the “higher than anticipated cost” of building and maintaining a regulatory reporting business.

This high cost has left some providers with no choice but to exit the regulatory space entirely—most notably CME’s decision to scale back its regulatory reporting activities in November and Deutsche Börse’s move to sell off its reg business to MarketAxess in September 2020. 

When you look at the level of change, you look at the cost of the ambiguity of the regulatory text [and] you look at the variability of the quality of the data that’s being delivered by clients—these factors have contributed to a high cost of delivering the service. 

Brian Lynch

“When you look at the level of change, you look at the cost of the ambiguity of the regulatory text [and] you look at the variability of the quality of the data that’s being delivered by clients—these factors have contributed to a high cost of delivering the service. That’s why some other firms have shut down or sold their services, because firms have struggled to see a path to profitability,” Lynch says.

Bloomberg could not disclose the details of the new reporting thresholds and how the prices are calculated, citing competitive reasons.

Legacy clients who contracted with Bloomberg before 2020 were notified of the new commercial model in the second quarter of last year by a letter, and were contacted by sales representatives. The changes took effect in October 2020, and will apply to clients when they renew their contracts, which are typically signed every two years. Any legacy clients that renewed their contract prior to October 2020 will not be impacted by the changes until their next renewal date. However, those that renewed in November or December last year had a short window to prepare for the increases. Lynch says only a few firms were up for renewal in those months, and that the accounts team worked with them prior to the notice period.

“We had looked at the numbers, we had looked at where the renewal cycle was, and there were very few who had a short time (several months) to react, and our account managers had already been speaking to those who did,” he adds.

All new customers onboarded in 2020 and since then were signed up to the new RHub commercial model.

Users can also opt in to a premium version of the RHub services, which includes added features, functionality, and jurisdictional coverage of other regimes. For example, those clients that use the original Mifid II standalone solution could upgrade to the new iteration and use other RHub products to comply with other regulations, for a higher fee.

The premium version’s features include enhanced reporting analytics, workflow visibility, and access to three-way reconciliation, which shows a view of the clients reporting data, data from the Bloomberg ARM, and data from regulators, such as the UK’s Financial Conduct Authority (FCA).

Sophie’s choice

Over the next 20 months or so, depending on when their contracts are up for renewal, existing clients will have to decide whether to continue using the Mifid II or SFTR products as standalone solutions with the newly added flat fee, whether to opt into the premium services, or whether to shop around for other providers.

Vinod Jain, senior analyst at Boston-based consultancy Aite Group, says switching regulatory providers is not all that burdensome for a financial firm because much of the data being sent to these providers is the same, including the same fields and the same reporting specifications. For instance, the Regulated Technical Standards 22 (RTS 22) under Mifid II sets out the standard way for investment firms to report to the National Competent Authorities under the regime.

“The majority—or almost 90%—of [the reported data] being sent to Bloomberg, to Trax, or Tradeweb or any other platforms, would be very similar, and I believe if one changes the price, it’s very easy on the client side to switch off one and switch to another provider,” Jain says.

However, WatersTechnology has previously reported on the challenges of porting data to a new provider, with sources citing the need for translation layers between different systems, and various implementation requirements. 

Lynch says the responses from clients regarding the price changes are in line with the vendor’s expectations.

“We’ve seen that attrition is very low. It is in line with expectations, and commercially it has been offset by clients who have opted to upgrade to the premium service, which takes the product to a new level. So right now, the model is largely in line with the expectations, and we’ll continue to work with clients to hopefully get them all on board,” Lynch says.

Joris Hillebrand, managing director at Synechron Business Consulting, says that typically in scenarios like these, a provider would work with its heavyweight clients to negotiate their contracts and avoid losing their business. However, the effects of consolidation in the regulatory reporting market and the growing importance of a smaller pool of large providers have changed the dynamics of the market.

“I can imagine if they are a very large client and they really don’t want to lose their business, that there might be some room to negotiate, but this room is very limited, because of the consolidation and how these service providers have gained power, in general,” he says.

Lynch says Bloomberg will work with clients to adapt to the new changes and help them to better interact with its services—for instance, by looking at how a firm can reduce its reporting volumes to avoid breaching the higher price threshold. Differentiated models, on the other hand, are not up for debate. Lynch says Bloomberg will not consider offering bespoke prices or customized functionality to customers, and will only provide a standard model. In the past, CME Group’s Abide Financial was a popular choice among industry users because of its cheap deals and customized integrations—a business approach that many say resulted in pricing wars, thin profit margins, and its eventual unwinding.   

This type of approach had a lasting impact, distorting users’ perception of the reality of costs in this space. During the CME scaleback, from when the news first broke in May 2020 to when the services were cut off on November 30, many vendors vied to win the business of those looking for a new provider. 

We looked at the competing offers and, in a few instances, we could see that the pricing being offered was unsustainable, and as a result, we walked away from the deals saying, ‘We need to price in a way that is sustainable.’

Matt Smith, SteelEye

In those months, Matt Smith, CEO of SteelEye, a provider of regulatory reporting solutions, says the vendor walked away from several deals because former CME clients tried to negotiate low and unrealistic rates. However, that didn’t stop other providers from continuing to pursue the same approach as before. In several incidents, he says, CME clients tried to pressure SteelEye to drop its prices by showing it deals offered by competitors, who were trying to undercut their competition to gain more market share. 

“We looked at the competing offers and, in a few instances, we could see that the pricing being offered was unsustainable, and as a result, we walked away from the deals saying, ‘We need to price in a way that is sustainable,’ as we don’t want to increase prices on our clients later on,” Smith says.

A sign of the times

Bloomberg began drawing up plans for its new pricing model at the end of 2019, before the fallout from Abide exiting the industry. At that point, Bloomberg had more than two years’ worth of Mifid II data, it had experience running the system, and it had a growing catalog of clients—the foundations on which to base the economics of a new pricing framework.

“That is when we sat down and worked through the economics of the business with our management committee and proposed a new pricing model,” Lynch says. “Bloomberg takes time to go through the process before we go out to customers and make those changes.”

To some, the news of price increases is no surprise. Tom Wieczorek, global head of product management at UnaVista, the London Stock Exchange Group’s regulatory reporting platform, says providers charging higher premiums reflects how the industry is moving, and that regulated entities offering reporting services, such as APAs, ARMs, and trade repositories (TRs), are expensive businesses to run.

“I think it’s because of the regulatory responsibilities, the overhead and risk management of running a regulated service come at a well-justified premium, so it’s no surprise to us that this affects market dynamics and that the general trend in the industry is toward consolidation,” he says.

One senior executive at a competing regulatory reporting vendor believes Bloomberg may have underestimated the overheads involved in running the business when the firm initially launched its RHub Mifid II service in 2017, ahead of the Mifid II go-live in January 2018.

“I think part of it is when they went into the reporting business, they didn’t completely understand all the nuances of it because there was this mad rush to provide solutions for Mifid II. And I think as they got to the other side of Mifid go-live and had clients onboarded, they realized that they had miscalculated certain things, and that their overheads and costs were much greater,” the executive says.

Outside of building the technology and maintaining it, there are other costs to account for. The source says peripheral costs like cloud storage, managing reference data, and reporting to TRs need to be factored into a sustainable business model.

Some see the changes, such as consolidation, firms exiting the market, and price increases, as the fallout of an industry that is maturing. Ronen Kertis, head of regulatory reporting at IHS Markit, says the rising costs are a consequence of financial firms and regulators demanding better solutions. Kertis was previously CEO of Tel Aviv-based regtech vendor Cappitech, which IHS Markit acquired in December last year.

“I think the regulatory reporting industry is maturing and participants are learning to ask for more mature and more robust products, and those products cannot be sold at a very low price as some might have done in the past,” Kertis says.

Going forward, increased costs of compliance will most likely not come from existing regulations but rather from new regimes that emerge over time, he adds. According to a Greenwich Associates report, published on February 23, 69% of buy-side compliance executives interviewed expected to see increases in their budgets in 2021.

“Obviously, the more regulations there are, the more things you need to comply with as a firm, and this will mean more burden on the business from a cost perspective because you have more regulations to comply with, which is what happened with SFTR,” Kertis says.

All regulatory reporting providers spoken to for this article say they have no current plans to increase their prices in the next 12 to 18 months. Lynch also says Bloomberg has no further plans to increase its reporting fees in the next year and a half.

Leveling the playing field

There are three main types of players in the regulatory reporting space: incumbent providers, smaller regtech firms, and the regulated entities, such as ARMs, APAs, or TRs, such as the Depository Trust and Clearing Corp. (DTCC). There is also a lot of overlap among providers, as some incumbents like UnaVista also run a regulated TR.

Within this bubble, there are two conflicting arguments: Smaller vendors argue that the rules of the market, from a commercial point of view, are stacked against them. For instance, Smith says the regulatory space is a challenging environment for competition to thrive in or for new entrants to break into because of how some ARMs or TRs price their services. Meanwhile, regulated entities say they are subject to greater scrutiny from regulators, and face greater commercial pressures.

The anti-competitive argument is that because some ARMs or TRs offer discounts for higher volumes of transactions or Unique Trade Identifiers (UTIs) messages, entrants or smaller vendors have to absorb these costs, and at a disadvantage compared to incumbents that port larger flows to these entities. For example, under DTCC’s TR fee structure for 2021, the more transactions a firm reports, the cheaper the transaction fee. Reporting over-the-counter (OTC) standard derivatives, for example, can cost $0.50 per OTC derivative for volumes between one to 5,000, whereas on the other end of the scale, it costs $0.16 for volumes over 1,000,001. 

Smith believes the consequence of these discounts will be to cause an already squeezed market to become even smaller, forcing financial firms to choose from a limited pool of providers. However, one proposed resolution is for regulators to intervene to level the playing field.

“I’d like to see more from the regulator in terms of regulating price discounts for software providers,” SteelEye’s Smith says. “While as a software provider I like that I get cheaper costs with more clients, it becomes a model where new participants just cannot enter the market because the costs are so high initially.”

IHS’ Kertis agrees with the argument that it may be harder for new entrants to break into the space, and attributes this to the way the industry has matured. He says six years ago, when Cappitech first emerged, there were very few regtechs on the scene, and many financial firms ran their compliance functions in-house. Today, the landscape is very different. The technology, he says, has come a long way, and the barrier to entry is much higher.

“We’ve seen it maturing and growing in demand, so I think from that perspective, it probably would be more difficult for new entrants to come in, because the level of product and service that they would need to have from day one would be much higher than what would have been expected from a vendor five years ago,” he says.

On the flip side, some regulated entities that offer reporting services feel they are faced with unfair commercial pressures. In their role, they fall under the direct scrutiny of regulators and have to meet strict commercial requirements. For instance, under Emir, all pricing for TR services must be made publicly available and approved by the European Securities and Markets Authority (Esma) in Europe, or the FCA in the UK.

UnaVista’s Wieczorek says that unlike pure technology vendors, regulated entities have the added burden of adhering to strict risk and compliance demands. They are mandated to provide regulators with information and updates on their governance activities, compliance, risk, legal policies, and procedures.

Synechron’s Hillebrand agrees with this view, in that TRs operate on heavily restricted terrain. “What you have seen over the years now is that supervisors are not only imposing fines to reporting parties for incorrect reporting, but also to trade repositories for not delivering the robustness in their services that is expected, and you have seen a few cases where trade repositories have received fines,” he says.

Adding to these commercial pressures is the growing presence of the middle market. In contrast to arguments made by Smith and Kertis, Wieczorek says regulated businesses are the ones feeling the squeeze from all sides—and now even more so, as the bulging vendor community taps into their revenues.  

“There is a plethora of players in the middle market that offer services to prepare the data and manage the workflow to regulated entities,” he says. “While they don’t have the overhead of providing a complete solution and ensuring compliance for customers, they are connecting to those reliable and controlled regulated entities, which as a result are starting to become a mere endpoint of the data flow.”