With the Slow Drip of Bad News, Liquid Holdings Fights One Last Battle

The story of buy-side technology provider Liquid Holdings is a long, winding and interesting one. And with Nasdaq getting ready to delist the company's flagging stock, it's a story that could well end before the end of this year.

I'll remember Liquid for a few meetings I took at the company's sleek midtown offices a couple years ago; for a very in-depth demo that jumped headlong into complex options theory and other things that mere financial mortals like myself don't grasp, and for an unusual willingness to provide us good end-user sources ... mostly among their boutique hedge fund clients.

The firm seemed confident, transparent and really knew its stuff. Their technology was, on every appearance and what neutral sources told us, really good — though I'll admit, I also recall wondering about their history, knowing that at one point, Liquid had an aspiration to be a broker-dealer, in addition to a tech provider. I guess I figured they knew what they were doing.

Well, in this industry as everywhere else, looks can obviously be deceiving. That one foundational problem — what Liquid wanted to be, and how it would drum up business accordingly — has, in combination with a number of more colorful issues, brought the OEMS provider to its death knell.

I won't run through every one of those other issues, so much as point readers to this exhaustive chronology in Bloomberg that details the whole sordid history of Liquid's slow collapse, complete with personality conflicts, lawsuits, partying on a megayacht, and what has to be one of the more desparate (and botched) public offerings in the history of the fintech business.

Liquid's demise certainly lays bare the challenge involved in breaking into the O/EMS space, and breaking the mold. If you track the handful of others out there that own both an EMS and OMS property under care — Eze, for one, and REDI, working with Citadel Tech, come to mind — you'll see that they're being very cautious about integrating the two functions into one... or actively avoiding doing so at all.

OEMS, I Hardly Knew Ye

What isn't mentioned in the Bloomberg piece is what this all potentially says about Liquid's platform, or rather the idea behind it. Mismanagement and drama aside, it does portend an interesting question: can an independent OEMS entrant ever sustainably thrive? What caused the level of desperation that's pushed Liquid into this position?

It's more than fair to wonder, given the incredibly rich competition in both the OMS and EMS markets, which between them include some of the industry's most respected and successful brands.

The strategy for Liquid was always to use a thousand bricks to build a palace: get a couple hundred boutiques with a billion or thereabouts in assets under contract. Add them all up, and all of the sudden, you have a pretty nice business. The reason why they would supposedly flock to Liquid was fairly simple: the choices out there were either too unsophisticated (but free, and mostly broker-provided) or too bulky and expensive.

To be fair, Liquid did gain some traction among this group ... arguably just not enough, or not without creating an unsolvable mess in its wake, anyway.

The problem, to my mind, turned out to be pretty simple as well. Many startup shops still like free stuff, and others — especially those spinning off from investment giants — are already acclimated to their Charles River or Portware or Eze platforms, and are willing to pay a premium to stick with what they already know inside and out.

As different as Liquid is, they were fighting a fairly conventional uphill battle, both in terms of winning clients and convincing the industry of a whole new model. And even for the most well-run company, that's a tough one.

No Bull

I've been around long enough to know better than declare this The End of the OEMS project. I remember a few years back when a similarly fast and shiny startup, Benchmark Solutions, failed and ceased existence almost overnight. Their market — real-time pricing and analytics for OTC credit instruments — was similar to OEMS in terms of entry difficulty.

And yet a couple years later, now that corporates are finally starting to get the buy-side liquidity venues they deserve, that space is thriving.

In other words, I've learned to not mistake bad timing or a messy concoction of personalities and circumstances with a trend.

That being said, Liquid's demise certainly lays bare the challenge involved in breaking into the O/EMS space, and breaking the mold too. If you track the handful of others out there that have both an EMS and OMS property under care — Eze, for one, and REDI, working with Citadel Tech, come to mind — you'll see that they're being very cautious about integrating the two functions into one... or actively avoiding doing so at all.

Indeed, for now, this may just be the best lesson to take from Liquid's demise: careful and conservative is sometimes better than being the newsworthy bull in a china shop.

Editor's Note

Just a reminder: We're pleased to be just about ready for this year's Buy-Side Technology North America conference, hosted at the Marriott Marquis next Wednesday, October 7th.

I'm not sure if it's the weather, the pumpkin ale available at the cocktails afterwards or the wonderful tight-knit group of technologists who show up, but this is certainly one of my favorite events of the year.

I would advise all of our readers to take a peek at the program and our speakers, and if you're not already registered, definitely give some thought to visiting us — even if just for the morning or afternoon. You won't regret it.