Veronica Augustsson, chief executive of Cinnober, said 2017 has been a year of investment for the Swedish technology provider, which will start to pay off after MiFID II comes into effect.
Cinnober was founded in 1998 and originally provided real-time technology for trading and risk management to international exchanges and clearinghouses. Augustsson told Markets Media: “This is a limited client set and very people-intensive. We wanted to broaden the client base and also provide more standardised solutions.”
In May this year Cinnober acquired the business and assets of Ancoa Software, the UK-based company which uses artificial intelligence for market surveillance. In addition Cinnober has rebranded its three subsidiaries: Simplitium for reporting services; Minium for client clearing and a third for market surveillance, whose name has yet to be announced. Augustsson said: “2017 has been the year of investment.”
Boat Services for trade reporting was the first subsidiary to change its name. Cinnober acquired Boat for independent over-the-counter post-trade reporting in July 2014 from analytics provider IHS Markit. The reporting platform was created in 2006 by a consortium of banks in order to create a neutral hub to address MiFID and other market regulations. Boat had used Cinnober technology since inception for pre-trade quoting and post-trade reporting for all European OTC cash equity trades for MTFs and investment firms.
Augustsson said: “The Boat acquisition really helped us raise awareness amongst banks.”
Last year Boat and the London Stock Exchange Group announced the launch of TRADEcho which combines their trade reporting services ahead of MiFID II, the new regulations coming into force in the European Union in January 2018.
“We knew the equity component of our reporting service was complementary to the exchange,” added Augustsson. “In addition, the LSE Group has a big balance sheet while we can be nimble when developing products.”
MiFID II extends reporting from equities across multiple asset classes. Nicolas Bertrand, head of equity and derivatives markets, London Stock Exchange Group, said in a statement at the time: “TRADEcho aims to be the platform of choice for trade reporting in Europe and will start by covering equities and fixed income.”
In August TRADEcho was amongst six firms authorised as an Approved Publication Arrangement by the UK regulator, which means it can publish post-trade transparency reports on behalf of investment firms to meet their MiFID II requirements. More than 350 customers, and 26 vendors, have signed up to TRADEcho according to Cinnober.
“Over the past months, several electronic, order and portfolio management system vendors have formalised partnerships with TRADEcho to automate their MiFID II trade reporting services,” said Cinnober. “Under these partnerships investment firms, with the vendor management systems in place, can use TRADEcho as an APA to report trades and access TRADEcho’s unique smart report router to determine trade reporting eligibility.”
Augustsson continued there are high expectations for Simplitium after MiFID II launches. She said: “We will offer new services after MiFID II and we have a project to increase transparency for MTFs and OTFs [a new MiFID II venue]. We are working with the industry to derive value from the new data generated by MiFID II.”
Simplitium will also be developing products to increase transparency in previously opaque markets. For example, in September JBA Risk Management became the first flood modeller to integrate its models onto the platform. Jane Toothill, risk management director at JBA, said in a statement: “The collaboration helps provide the market with access to a range of high quality, fully transparent flood models via a robust, secure and cost-effective platform.”
In the same month Ruth Crowell, chief executive of the London Bullion Market Association, announced that Simplitium will be the trade reporting service provider for its new system, under which OTC market participants will report transactions.
Crowell said in a report: “The initiative has three clear benefits: it will create an accurate picture of the size and shape of the market; it will promote transparency for existing and potential investors, and it will engender confidence in the liquidity and efficiency of the London market. Initial steps have been taken and the system will be fully rolled out next year.”
Cinnober's clearing subsidiary, Minium, will be looking to extend real-time clearing, risk and post trade services from CCPs to the banking sector.
“We have a development group in Sweden for Minium which will bear fruit over the next two or three years,” Augustsson added. “We are already working with one pilot customer on a tailor-made risk tool.”
In its interim report for the first nine months of this year, Cinnober said growth initiatives and the acquisition of Ancoa had a negative impact of SEK 59.6m ($7m) on earnings. Cinnober raised SEK 175m ($20m) from a share issue to fund Minium’s investment in client clearing.
The firm also signed a medium-sized deal during the period with a new Asian marketplace for real-time clearing and rolled out the second phase of a major Brazilian clearing project and a new trading system for the Australian derivatives market.
Augustsson said in the results statement: “Our long-term growth efforts continue to negatively impact our operating earnings, which amounted to a loss of SEK 19m during the quarter, compared with a loss of SEK 29m in the second quarter of the year. We will continue to see volatility in revenue, depending on how our project revenue falls within each quarter. It is gratifying that the business is developing according to plan and recurring revenue accounted for 72% of net sales in the period – the highest proportion so far.”