State Street set to acquire outsourced trading firm CF Global

A deal would place the custodian alongside the likes of Northern Trust and UBS, which both also boast strong custody and outsourced trading units and subsequent synergies.

Financial services giant State Street is set to acquire outsourced trading firm CF Global, multiple sources familiar with the matter have told The TRADE.

Terms of the deal have not been disclosed and the transaction remains subject to regulatory approval. The acquisition is believed to have been agreed in the third quarter of last year but was subject to unconfirmed delays, The TRADE understands.

The possibility of a CF Global acquisition is rumoured to have been on the table for several years, according to sources, with a number of interested parties circling.

CF Global chief executive officer Steven Blackburn declined to comment when contacted by The TRADE. State Street told The TRADE it would not comment on “market rumours”.

The deal, if/when completed, will give State Street access to CF Global’s extensive relationships in the space as a segregated outsourced trading entity. The global custodian and asset management organisation recently saw its proposed acquisition of Brown Brothers Harriman’s Investor Services unit fall through; however, it did acquire Charles River Development for around $2.6 billion in 2018 and FX TCA startup Bestx in the same year.

Outsourced trading firms offer the buy-side an opportunity to outsource any or all of their trading desk operations as well as their back-office capabilities and technology. The model has typically been favoured by the hedge fund community but is now making waves in the long-only traditional buy-side space as the model concretes itself in the market and cost reduction on the buy-side comes more to the fore.

Read more – UBS confirms plans to launch US outsourced trading desk

The space has become increasingly populous in the last 18 months following the introduction of a wave of new players. UBS launched its outsourced trading desk for its US hedge fund clients in May 2021 and later appointed the former global head of equity trading at Morgan Stanley Investment Management to head it up in June. It also added to its London and Frankfurt-based outsourced trading teams in August last year with several new hires including the former head of trading across cash and derivatives instruments across instruments, Ian J Power.

Several other firms including Cowen, StoneX and JonesTrading made a string of senior appointments throughout 2021 and last year to expand their outsourced offerings. Most recent was BNY Mellon, which announced a new outsourced trading offering for buy-side institutions globally in January this year, which it claims will provide opportunities for improved operational and strategic efficiencies, savings and expansion.

With the market now increasingly competitive, consolidation in the outsourced trading world is expected to ramp up. Several global custodians are reportedly exploring the market, keen to leverage their custody client bases by offering lower custody fees in exchange for access to firms’ trading business, sources tell The TRADE.

Custodian giants Northern Trust (through Aviate Global) and UBS both champion strong custody and outsourced trading businesses. The latter reported a better-than-expected net profit for 2022 of $7.6 billion despite sharp declines in investment banking also seen by its peers.

With a State Street acquisition of CF Global potentially on the cards, there could be another key player in the game, as major custodians realise they have the tools internally to make the outsourcing model pay. They are also seeking new avenues of revenues as traditional asset servicing becomes increasingly commoditised.

Major custodians are reportedly looking to hoover up outsourced trading businesses to leverage against their custody client base for better returns, with several other outsourced firms reportedly up for sale.