Market operators strengthen their data and technology arsenals; Intercontinental Exchange buys consumer-facing program for its crypto business
Friday, February 14, 2020
By Jeffrey Kutler
Three leading exchange companies have raised their respective competitive antes with a coincidental series of technology-driven acquisition deals.
Cboe Global Markets made two for its Cboe Information Solutions unit: high-tech risk analytics company Hanweck Associates; and the portfolio management platform business FT Providers LLC, commonly known as FT Options. Together they “will further enhance the customer experience through greater visibility into portfolio and balance sheet risk,” Chicago-based Cboe said.
Nasdaq acquired OneReport, which provides corporate responsibility and environmental, social and governance (ESG) reporting services. OneReport will be central to, and the brand name of, a Nasdaq Corporate Services offering, announced in January at the time of the World Economic Forum's Davos, Switzerland meeting, that streamlines the flow of sustainability data into frameworks such as the Global Reporting Initiative, RobecoSAM and Task Force on Climate-related Financial Disclosures.
Statements by Intercontinental Exchange that it had explored but was not continuing negotiations with eBay overshadowed a completed agreement disclosed February 5 for consumer loyalty systems company Bridge2 Solutions and was overhanging the February 6 announcement that ICE earned $1.9 billion on $5.2 billion of net revenue, a 14th consecutive annual record, in 2019. Bridge2 is to become part of the Bakkt digital asset and payments venture that ICE formed in 2018 and majority-owns.
The early February transactions are emblematic of an arms race among financial market and infrastructure rivals that increasingly centers on technology and data (see Dealing for Data: LSEG Stands Out as Others Ramp Up) and has carried over into the rapidly expanding sustainable investments field (ESG Becomes a Battleground of the Exchange Titans). Nasdaq president and CEO Adena Friedman has presided over what she terms a strategic pivot toward technology, data and analytics. Intercontinental Exchange's 2019 revenue just from ICE Data Services, at $2.2 billion, was within range of Nasdaq's $2.5 billion total net revenue (which included $779 million from information services, $496 million from corporate services and $338 million from market technology).
“More Integrated Product Suite”
The $1.1 billion-net-revenue Cboe says that its information solutions are “designed to optimize the customer experience throughout the life cycle of a transaction, from pre-trade to at-trade and post-trade, by providing insights, alpha opportunities, portfolio optimizations, risk management clarity and execution services.”
“Bringing data and analytics firms that pioneer unique information solutions to Cboe helps us accelerate the pace of innovation and better serve our global clients,” Cboe Global Markets chairman, president and CEO Edward Tilly said on February 4, without disclosing terms of the transactions but deeming them accretive for 2020. “Adding Hanweck and FT Options to our Information Solutions group will help us deliver a more integrated product suite in less time and support trading through better asset pricing and risk management software. We are excited to welcome the Hanweck and FT Options teams to Cboe Global Markets.”
Currently with offices in New York, Chicago and Belfast, U.K., Hanweck Associates was founded in 2003 by Gerald A. Hanweck Jr., a one-time software developer who in 10 years with JPMorgan served as chief equity derivatives strategist and led the U.S. fixed-income derivatives strategy team. Evolving from consulting to product development in 2006, the firm became known for early adoption and implementation of high-performance graphics processing unit (GPU) technology, enabling real-time risk analytics for participants in global derivatives markets. Its Volera Compute Engine “is capable of consuming the highest-volume market data feeds such as the OPRA [Options Price Reporting Authority] feed with peaks over 70 million messages per second, and processing millions of analytical calculations per second.”
“Since 2006, Hanweck has been at the forefront of quant finance and technology innovation in the derivatives market,” Gerald Hanweck said in a statement. “Our services enable our clients to improve their trading and risk management decisions by integrating high-quality, real-time financial analytics into their workflow. I'm excited to add our services to the exchange where volatility trading began, and to be a part of the Cboe team carrying that innovation legacy forward through seamless solutions for the derivatives marketplace.”
Cboe said it expects clients to better understand how balance sheets are optimized through real-time margin calculations of non-linear instruments and analytics that optimize portfolio allocations and hedges.
FT Options of Chicago offers customizable, automated, integrated applications that provide research and analytics functionality across options, futures and light exotics for proprietary trading firms, hedge funds and separately managed accounts. Its tools are expected to help Cboe clients “to better manage risk, receive clarity on FLEX and OTC valuations, find market dislocations easier and help generate alpha opportunities,” the announcement said.
“FT Options is a leader in the space - created by experienced traders and risk managers to offer first-in-class, customizable portfolio management functionality to a broader user base,” said founder and CEO Michael Izhaky. “I couldn't be more pleased to bring our team to Cboe and integrate FT Options' risk and volatility analytics research platform into the robust volatility trading support Cboe's clients have come to expect.”
Overcoming Survey Fatigue
OneReport's software since 2003 “has helped leading organizations navigate corporate responsibility frameworks, pilot the information capture and response process, and deliver ESG data to ratings agencies and other stakeholders,” according to Nasdaq's announcement.
Nasdaq noted that “ESG data has increasingly become an important resource for investors seeking performance indicators, but also for public companies trying to increase operational efficiency, decrease resource dependency, and attract new customers and employees.”
“Our clients face several challenges with the ESG reporting process, including the lack of control over data management and survey fatigue due to the variety of raters and reporting frameworks,” Nelson Griggs, president of the Nasdaq Stock Exchange, said in January. “We believe that we are uniquely positioned to solve for these challenges given the thousands of clients who rely on Nasdaq for counsel on a range of sustainability and governance-related issues. The new platform will broaden our strategic collaboration with corporates who are seeking new ways to bring efficiency and simplicity to the ESG reporting process.”
Nasdaq OneReport “will broaden our strategic engagement and collaboration with issuers who are seeking clarity on ESG reporting,” Griggs said.
“We are excited to join together with Nasdaq as we continue our mission to advance responsible ESG performance and disclosure, while streamlining the corporate responsibility and ESG disclosure process,” said Janice Warren, president of Brattleboro, Vermont-based OneReport since 2012.
Second Phase for Bakkt
ICE's Bakkt has been regarded as a leader in laying infrastructure for the digital or crypto assets market, building on its parent's robust and regulated institutional trading and post-trade foundations. Last year it acquired Digital Asset Custody Co. and certain assets of futures commission merchant Rosenthal Collins Group.
“We began by building a regulated bitcoin custody solution as well as regulated futures and options on bitcoin,” ICE chairman and CEO Jeffrey Sprecher said in the February 6 earnings call, as reported by Coindesk. “The second phase includes a consumer-focused digital payments app Bakkt first formally announced in October.”
As it looks to accelerate its consumer-facing development, and eyeing a $1.2 trillion “global ecosystem for digital assets,” ICE said it will own Bridge2 Solutions - both companies are Atlanta-based - until Bakkt takes it over with proceeds from a Series B funding round due to close this quarter.
Users of Bridge2 include seven of the top 10 financial institutions and 4,500 loyalty, incentive and employee perk programs in multiple industries. The company's Loyalty Pay solution lets consumers make payments with reward currencies both at points of sale and in-app through digital wallets - functionality that Bakkt is looking to integrate.
“With the launch of the Bakkt app, we will, for the first time, offer consumers a robust platform to consolidate and use all of their digital assets, from crypto to loyalty points to in-game tokens, in one user-friendly wallet,” said Mike Blandina, Bakkt's CEO since December, when founding CEO Kelly Loeffler was appointed to a U.S. Senate seat. “Combining Bridge2 Solutions' embedded relationships with banks and merchants and their innovative Loyalty Pay solution will enable us to launch new products that further drive loyalty and empower consumers to trade, transfer and spend digital assets in entirely new ways.”
Nasdaq Ventures Investment
When Nasdaq launched its strategic Nasdaq Ventures fund in 2017, Hanweck Associates was in the portfolio, inherited in the previous year's acquisition of International Securities Exchange. The most recent portfolio addition, as of early February, is alternative-investment operations servicer Canoe Intelligence, through a Series A financing alongside Hamilton Lane, Portage Partners and Promus Capital, among others. With machine learning technology, Canoe makes possible rapid conversion of “volumes of unstructured alternative investment reporting documents, including PDFs, into normalized and accessible datasets,” and tracking and organizing the associated documents, the announcement said, freeing users to “focus more on investment decision-making, client service and other value-add functions.”
Canoe was founded in 2013 within private investment firm Portage Partners and was spun out in 2017.
“Our team has firsthand experience investing in alternatives and understands the nightmare of collecting and processing the endless recurring documents investors need to monitor, analyze and track their allocations,” said Canoe CEO Seth Brotman, who has both an investing and venture capital background. “Canoe Intelligence solves this pervasive industry problem head-on by blending our team's unique expertise with targeted, purpose-built technology.”
With anticipated growth in alternative assets expected to increase operational and reporting burdens, “Canoe has made important strides in addressing key data challenges in this space through technological advances,” said Gary Offner, head of Nasdaq Ventures. “Through our continual quest at Nasdaq to support unique and innovative technology companies, we are pleased to participate in Canoe's financing and support the company's continued growth.”
“We believe that the greatest change in the private markets industry over the next decade will be how technology and the use of data transform the way LPs and GPs construct portfolios and invest in the asset class,” said Erik Hirsch, vice chairman and head of strategic initiatives, Hamilton Lane. “It is against that backdrop that we seek to partner with cutting-edge companies like Canoe that are leveraging technology to advance our industry. As a strategic investor and partner, Hamilton Lane can provide guidance and insight with the aim of helping Canoe continue to unlock new efficiencies for more market participants.”
Strategic Funding for Digital Asset
Two months after the December announcement of a $35 million Series C financing, distributed ledger technology developer and DAML smart contract language creator Digital Asset Holdings said that Salesforce Ventures and Samsung Venture Investment Corp. are participating in the round's second closing.
Digital Asset also said that Susan Hauser, an adviser to the company and a 28-year veteran of Microsoft Corp., has joined its board of directors.
Digital Asset is pursuing partnerships for which it provides commercial integrations of DAML. In April 2019, for example, the New York-based company announced a partnership to integrate DAML, which was open-sourced last year, with VMware Blockchain. Others involve Hyperledger Sawtooth, Hyperledger Fabric, Corda, Amazon's QLDB and cloud-native Aurora database, many of them commercially supported through Blockchain Technology Partners' Sextant for DAML platform.
“We strongly believe that Digital Asset's model to embed DAML in partner platforms fundamentally changes the entire blockchain market,” said a statement from Samsung Venture Investment Corp., which says that it invests in future-oriented businesses based on new and innovative technologies that are expected to serve as new growth engines. “Digital Asset has positioned itself for success in the blockchain space, and we are pleased to help it achieve its vision,” the Samsung unit added.
Salesforce Ventures puts an emphasis on enterprise cloud innovations and says it has helped accelerate the growth of more than 375 companies since 2009.
Digital Asset co-founder and CEO Yuval Rooz said, “Salesforce Ventures and Samsung joining our Series C financing round demonstrates the potential that technology giants see in DAML as the standard for smart contracts. Appointing Susan Hauser to the board will help us capitalize on this vision. She brings us her unparalleled understanding of customer needs and exceptional experience building an enterprise business at Microsoft.”
As corporate vice president of Microsoft's Worldwide Enterprise and Partner group, Hauser was responsible for commercial sector, government sector and enterprise partnerships globally, including such key vertical industries as healthcare, education, retail, manufacturing and financial services. Other roles at Microsoft included general manager of the New York Metro District and of the Customer Advocacy and Licensing group.
She said that as an adviser to Digital Asset, she “quickly learned how transformative smart contracts could be for a variety of use cases and across industries. We are going to see adoption of smart contracts - and languages like DAML - take off in the near future. I look forward to lending my expertise and helping DA expand its go-to-market activities and transform entire industries with DAML, delivering innovation without compromising trust.”