Exegy Incorporated and Vela Trading Systems have set out plans to inorganically grow their offering to span the entire front-office lifecycle of a trade through new acquisitions.
Announced in May last year, the pair consolidated their offerings with the support of $7.5 billion investment firm Marlin Equity Partners.
The move combined Vela’s automated trading and direct market access platforms with Exegy’s predictive trading signals and hardware trading platforms including Vela’s automated options trading platform, Metro, and Exegy’s FPGA-based Xero volatility trading engine, to create an integrated derivatives trading platform that would allow users to execute strategies in less than 120 nanoseconds.
Speaking to The TRADE, co-president and chief technology officer of the newly combined entity, David Taylor, said Exegy now intends to become a provider of solutions across the entire front-office trading cycle leveraging inorganic growth through new merger and acquisition deals.
“We want to be a provider of the most innovative, trusted infrastructure and solutions for the full front-office trading cycle. Market data, signals and analytics, algos and execution. With the combined product portfolio from Exegy and Vela, we now have that ability not only to provide that as software solutions, but as differentiated hardware solutions that perform better than anything else in the marketplace. That’s part of the guiding light of who we want to become as a company. The M&A strategy is just how we get there faster,” he said.
“A big part of the technical effort since the deal closed has been producing a unified market data platform, a central platform that we can then deploy products from in a number of different ways.”
Demand from buy- and sell-side firms for one-stop-shop or plug-and-play technological solutions has grown significantly in the last year as many firms look to reduce costs and operational inefficiencies caused by using multiple vendors.
Consolidating acquisitions taking place in the market in the last year include ION’s acquisition of DASH Financial Technologies, TradingScreen and Imagine Software’s merger, and Broadridge’s acquisition of Itiviti.
According to Taylor, this demand for plug-and-play solutions has also been driven by the requirements for firms to remain competitive becoming more advanced. Institutions want to focus on what they’re good at and outsource the necessary technology with minimal fuss, he said.
“On the buy-side as a trading firm and even the sell-side as a broker, the table stakes to be competitive have continued to rise. It used to be good enough to simply understand the market, have some relationships and you could go make a business of it. Now it has become so sophisticated that you have to have the fastest market data, automated trading strategies, and excellent risk management,” said Taylor.
“It’s not good enough just to be fast, you have to be predictive, which means you have to be harnessing artificial intelligence. Firms are saying we’re not a hardware design firm, we are not in AI firm, but we need all those tools. They’re looking for a way to get everything they need to stay competitive, hone in on what makes them special and buy everything else as a service without having 100 vendors to manage.”
Mergers such as the Vela deal will allow Exegy to leverage this demand for a consolidated offering and more effectively partner as a sole technology provider with larger customers, said Exegy’s recently appointed chief revenue officer, Craig Schachter.
“Now that we have these wonderful tools at our disposal and we’re one of our largest providers in that space, some of our largest customers have been asking whether we should discuss how we really consolidate, not just in a best of breed way, but in a best of partner way. That is what we can now bring to the table like nobody else in our space, which is super exciting,” he said.
The pair confirmed that other companies had been identified and further acquisitions were due to take place in the coming year.
A key driver behind the Vela merger was its extensive execution remit, gathered via its own acquisitions of options trading platform, OptionsCity, in 2017 and direct market access platform for global listed derivatives, Object Trading, also in the same year.
“They [Vela] were providing a path to market for anyone trading derivatives globally. That was the whole sort of execution side of the trade trading cycle that traditionally Exegy did not play in,” said Taylor. “We saw an opportunity as someone in the marketplace with that technology expertise to build a product, democratise access to that capability, and make it available to a much broader swath of the market. Which we think is good business. We also think it’s good for the markets when more people can participate and when risk can be distributed.”
Vela and Exegy’s offerings overlap somewhat, however, their customer bases differ from one another in their reach and the type of institutions they provide services for.
This wider range of customers acquired through the deal has enabled Exegy to further democratise access to its front-office trading solutions, said Schachter and Taylor.
“The legacy Exegy business had historically focused on the very top end of the market. The top 20 banks, the top 20 hedge funds. Those were our most meaningful revenue streams. Vela had a much longer tale of customers. They went down market and worked with partners a little bit differently,” said Schachter. “We’ve now got 200 or so customers globally and the large majority of those came from the Vela side of the acquisition,” said Schachter. “Retail, brokerage and wealth management are all areas that we’re going to be focused on this year and over the next couple of years.”
He added that Exegy had plans to move into the mutual fund and exchange traded fund (ETF) space in the near future with the addition of one of the top five global asset managers to its growing customer base.