Normally, this is the time of the year that I head down in Raleigh to visit family, play some golf, go to the firing range, and drink good North Carolinian beer (and maybe even hop over to Asheville). Sadly, that trip will have to wait a bit longer this year, so let’s talk trading technology and market data. This week I look at how the NEX brand is slowly disappearing from existence, and provide some conspiracy theories as to the epic, colossal, magnificent, amazeballs, intense market data reform fight. They’ll make a movie about it one day, I’m sure of it. Let’s get to it. 

No More Nexts for NEX?

Four summers ago, Icap Plc announced it would rename itself NEX Group after Tullett Prebon bought its global broking business for £1.1 billion (~$1.7 billion in 2015). While TP Icap still forges ahead as a major interdealer broker, it appears that the NEX name is fading.

NEX—which included the BrokerTec, EBS, Traiana, TriOptima, Abide Financial, and Enso Financial Analytics business units—was acquired by CME Group in late 2018. By July 2019, Aquis Exchange acquired NEX Exchange, the UK-based stock market for growth enterprises, from CME for a £1 million (~$1.2 million) cash consideration, plus £2.7 million (~$3.4 million) based on NEX Exchange’s then-working-capital levels. Three months later, CME sold the Enso Financial Analytics to piece to HazelTree for an undisclosed amount. Then, this spring, CME announced that it would wind down its regulatory reporting businesses—Abide Financial and NEX Regulatory Reporting—that it took over after the NEX acquisition, as it could not find any buyers.

Brands BrokerTec, EBS, Traiana, and TriOptima, which were all assets acquired by Icap—rather than internally-created—are still under the CME umbrella. BrokerTec and EBS have been integrated into CME Globex; Traiana and TriOptima are run as separate post-trade entities.

This M&A talk can be a bit convoluted, I know, but I bring this up because of some recent comments made to WatersTechnology about NEX’s tech stack. This past week, Alasdair Haynes, the CEO of Aquis Exchange, spoke to Hamad Ali about how the company is progressing after acquiring NEX Exchange (now known as the Aquis Stock Exchange, or AQSE).

What jumped out to me about this conversation is that Haynes was fairly blunt about the tech stack that it acquired: Haynes said that some of the platforms acquired in the deal were “out of date” and even “sort of terrible”. Yeesh…tell us what you really think!

Quite frankly, I appreciate this kind of honesty—it’s painfully rare in the world of capital markets technology—and this statement shouldn’t be all that surprising, as he had this to say after the deal was announced in 2019: “We will not be taking their technology; we will be implementing our own technology solution.” Aquis knew what it was getting and it wasn’t a desirable tech stack; rather, it was an established growth marketplace that it could use to compete against LSEG’s AIM growth market by fitting it with its own, proprietary platforms built by Aquis Technologies.

This statement also caught my eye, though, as I was reminded of some comments made to Josephine Gallagher during her magnificent reporting of the CME’s decision to back out of the reg reporting space. As she laid out in great detail, there were many reasons why the CME was unable to find a buyer for Abide and NEX Regulatory Reporting (or for NEX’s European and Australian trade repositories), but one was that the tech wasn’t considered to be differentiating. Why shell out hard cash to buy a tech stack and acquire the users as clients, when the clients can simply migrate to a competing platform after the other business shutters? For providers still in the market, there’s already a battle to acquire those client assets.

I next wanted to look at Enso, which had built up a strong reputation among buy-side firms in the portfolio analytics space. After Icap bought Enso in April 2016—remember, at this point Tullett Prebon had already announced its acquisition of Icap’s voice broking business, and a month after the Enso deal, the NEX name was founded—the acquirer made a point to note that Enso’s three founders—Matthew Bernard, Michael Gentile, and Dwaine Alleyne—would “continue in their leadership positions with ENSO and will report to Jenny Knott, CEO of ICAP’s Post Trade Risk and Information (PTRI) division.”

Well Knott made headlines when she left NEX Group in October 2017, and a LinkedIn search shows that Alleyne also left in October 2017, while Gentile and Bernard left in 2018 and now work at a startup consultancy called Aviary Management.

NEX still has a website, though it doesn’t appear to be up-to-date as NEX Exchange is still listed under the “Our Business” tab. To me, this all looks like the end of a short-lived era. And maybe that’s exactly what was supposed to happen after the CME acquisition—the exchange kept the pieces that made the most sense for its business, and either sold off or shuttered the ones that did not.

While that makes complete sense, it’s also another example as to why employees of acquired firms get nervous when new management comes in and says we’re all on the same team. But business is business.

At Odds Over Odd Lots

A large percentage of WatersTechnology’s readership is made up of market data professionals. To serve them best, we often write about niche data providers and in-the-weeds regulations, and this coverage is usually led by the nonpareil Max Bowie, who has been covering the space for two decades. But this week, Jo Wright wrote a wonky but incredibly informative feature detailing the latest debate embroiling exchanges and the US Securities and Exchange Commission (SEC), who happen to be at odds over odd lot trades.

The SEC has put forth a controversial proposal to expand and reform the content and distribution of public US equities market data, which has led to a fair amount of sniping back-and-forth between US exchanges and trading firms over the cost of market data.

But these same firms appear at least somewhat unified on one aspect of the reform: that the currently-proposed solutions around odd lots—orders of less than 100 shares of a stock—would create more complexity for market participants and threaten the ability of brokers to provide best execution.

It’s a 3,000-plus-word story, so I’ll let Jo explain how this debate could be the precursor for what could become Reg NMS II, but one thing worth wondering about is this: do exchanges want to reach a consensus with trading firms to create a wedge distracting the SEC from its main proposals around market data reform, which could negatively impact exchanges’ data revenues?

As Jo notes, the clock is ticking: SEC chairman Jay Clayton’s five-year term ends next year, and this market data overhaul would allow him to put his own stamp on the Commission. Additionally, sources told Jo that Brett Redfearn, the director of the SEC’s Division of Trading and Markets, who has been a big proponent of reform, is unlikely to stay in his role much longer after Clayton leaves.

And it’s Redfearn, in particular, who is an outspoken figure in favor of reforming Securities Information Processors (SIPs) and against market data fees. In 2016, while still in his prior role as global head of market structure for JP Morgan, he said the SIPs need to be fixed or phased out.

“Proprietary data feeds have been the beneficiary of significant investment and innovation. They are also categorized by unconstrained and increasing fees. In contrast, the consolidated data feeds are characterized by an antiquated architecture, an inadequate consolidation process, and questionable practices regarding the purchase and utilization of bandwidth. … The SIPs are basically delayed data being sold as real-time data at a cost of nearly $40 million a year to investors,” he said in his 2016 letter to the Commission.

Some of his and Clayton’s attempts at reform have been frustrated by bitter court challenges. Redfearn’s transaction fee pilot, a project intended to generate data to help the Commission evaluate whether exchange fees are reasonable, was struck down by the DC Court of Appeals in June, after the major exchanges and some investment firms sued the SEC.

Another ruling in the same court this year favored an appeal by the exchanges of a decision by the SEC to overturn a prior decision on market data fee increases. In 2016, the regulator ruled that exchanges could raise fees on depth-of-book data. The Securities Industry and Financial Markets Association (Sifma) challenged the ruling, and the SEC overturned it in favor of Sifma in 2018. The exchanges then sued.

During the ensuing legal battle, the exchanges wanted Redfearn recused from the lawsuit because of his prior role at JP Morgan. They contended that Redfearn had also served as chairman of Sifma’s equity markets and trading committee, and the exchanges said he’d been heavily involved in writing Sifma’s legal strategy on market data during his time at the bank.

So the thinking is this: Clayton will be leaving the SEC soon, and there are those who believe that Redfearn will also be leaving within a year, maybe two (though it’s important to note that that is the opinion of some industry participants, and he has not said that he is leaving anytime soon). With that “legacy” clock ticking, they’ll want to enact reform that will have a lasting impact. Exchanges clearly have reservations—to put it nicely—about the SEC’s data fee proposals, but if they can agree on odd lots, it can serve as of middle ground for the different players in this industry to enact meaningful change, and kick those pesky data fee conversations a bit farther down the road.

Quick Hitters

* When S&P Global bought Kensho Technologies for $550 million back in 2018, it turned heads because, as Forbes noted, it was “the largest price on an AI company to date,” and, “That the biggest AI deal comes out of Wall Street (from a 158-year institution no less) and not Silicon Valley, shows just how much the future of finance might rely on bots over brokers.”

Kensho, which counted Goldman Sachs as a backer, was formed in 2013 by Daniel Nadler, a Harvard PhD graduate. It counted technology specialists from Google, Apple, and other tech giants among its ranks, and it specialized in AI for finance and national security.

This week Max Bowie spoke with the folks at S&P and Kensho to hear about how the AI startup is being used to apply tags and identifiers to its history of transcripts of earnings calls and corporate events, making it easier for investors to find information on companies, executives, and competitors hidden within those datasets.

The product’s name? NERD, naturally.

* OneMarketData is in the last leg of its two-year migration project to deploy its data solutions on the cloud. The vendor’s two offerings, OneTick, an enterprise platform for managing and analyzing tick data, and Tick Data, a service for historical, intraday, and time series data, will be made fully available on Amazon Web Services (AWS) by the end of the year.

As we keep saying, if you are not currently embracing the cloud for flagship products, you’re simply delaying the inevitable.

See you next Sunday.