Battlefield Surgery, Meet Corporate Triage

If there's one thing that causes us an undue amount of grief here at Waters, it's the classification of the larger exchanges. Clearly they're part of market infrastructure, more aligned with the end user, but are they also vendors? Most participants I speak to seem to think so, but they don't really fit into our definition of ‘third-party vendor' in the same ways that companies like, say, Fidessa, Linedata, Thomson Reuters or Bloomberg do. Despite this, the technology divisions certainly prove strong at most places, but the increasingly troubled tale of NYSE Technologies─once a real leader in the exchange-owned vendor segment─is a sobering tale of bad timing and bad luck.

Formed from a number of acquisitions on the part of NYSE Euronext, and as part of a trend to begin offering exchange-quality services, in January 2009, NYSE Technologies looked like it would be a powerhouse. It brought together Wombat, the Securities Industry Automation Corporation (SIAC), Atos Euronext, NYSE Euronext's market data division, and later, NYFIX. It operates two major data centers in Mahwah, New Jersey, and Basildon, Essex. Its Capital Markets Community Platform, hailed at its launch for being an innovative and modern use of cloud, was released to great fanfare. Its Secure Financial Transaction Infrastructure, the five-year-old extranet, is well regarded, and it owns a 25 percent stake in Fixnetix.

All good on paper, right? The problem was, as previously mentioned, timing. Despite the glitzy toys and high-powered capabilities of NYSE Technologies, spending on technology took a big downturn over the last few years. NYSE Tech had been banking on the continued influx of cash into trading systems, connectivity and ancillary services connected to cloud trends, but when that bottomed out, it was left with expensive facilities to maintain, while still facing the need to innovate. Changes at the top didn't help, with CEO Stanley Young leaving for rival Bloomberg, and the two executives parachuted in to turn the ailing division around─Jon Robson and Terry Roche─set to step down from their posts.

Targeted Buys
The incoming acquisition by the IntercontinentalExchange (ICE) hasn't done much for NYSE Tech's fortunes, either. ICE CEO Jeff Sprecher has been quite clear that the acquisition of NYSE Euronext is, more or less, in order to gain control of the lucrative NYSE Liffe. The revenue-generating and business-sustaining market data division is being folded back into NYSE, while the Euronext segment is being sold off through a likely initial public offering. The technology provision arm, in a particularly cold euphemism, has been identified as an area for ‘savings'.

It's looking a lot like NYSE Tech will be acquired by another service provider, one who will probably be looking to cherry pick assets and divest others, much like ICE is doing with NYSE Euronext. It's something of an ignominious end for a division that has been so forward thinking for years, but next to the success of the technology provision arms of rival exchange operator like Nasdaq OMX and the London Stock Exchange Group, it's failed to gain traction. Those two institutions are seeing good returns, NYSE Euronext is not.

At times like this, there's a lot of tendency to start saying that maybe the trend is reversing, and that exchanges are going back to their roots. It's probably not the case.

At times like this, there's a lot of tendency to start saying that maybe the trend is reversing, and that exchanges are going back to their roots. It's probably not the case. ICE's acquisition of NYSE is aberrant in that it's very much solely focused on one specific financial segment, and it's not necessarily looking to gain technology and staff through acquisition, like so many deals seem to be about. Anyone expecting exchange groups to start abandoning their technology provision arms overnight is dreaming.