The acquisition of UK mid and back office systems vendor SmartStream for £200 million by the Dubai International Financial Centre (DFIC) – owner of the Dubai Stock Exchange – made headlines for a number of reasons. Not the least of these was the fact that the acquisition came just a month after SmartStream was forced to postpone its initial public offering due to weak market conditions.
Observers also counted this move by DIFC as further evidence of the Dubai group’s acquisitive and global expansionist strategy. Omar Bin Sulaiman, chairman of DIFC Investments, reckons the SmartStream acquisition “enhances the DIFC’s role in the global financial services industry and further establishes the DIFC as a global gateway for international financial business”. For data aficionados though, a somewhat throwaway line in the statement regarding DIFC Investments’ acquisition of SmartStream from private equity firm TA Associates (and SmartStream management and employees) catches the attention.
For DIFC intends that the SmartStream technology “will be at the heart of the secure, scalable trade processing and data management platform it is building”, to support the creation of “a new generation of hosted information and trade processing services”.
The SmartStream suite of Transaction Lifecycle Management (TLM) solutions’ main strengths are in the areas of reconciliations and exception management for use in financial institutions’ middle and back offices. It does have some exposure to reference data management through TLM corporate actions – a solution designed to consolidate information from multiple sources to provide a single enterprise corporate actions service covering multiple markets and instrument types. The system is said to manage the capture, cleansing and distribution of data to create a golden record.
Were DIFC to be planning for its “hosted information” services to span a broader range of reference data types it would likely need either to extend the capabilities of the SmartStream system, to build more technology or to buy additional technology or services in the reference data space. Nonetheless its acquisition of SmartStream indicates a commitment to the provision of hosted information services – which is timely, considering that in a troubled financial markets environment the appeal of outsourced services for what some argue can be utility services – and this includes certain types of reference data – is likely to increase.
For SmartStream’s part, its marketing director Alastair McGill says in the short term it will be business as usual for customers and employees as SmartStream continues “to develop and deliver new TLM solutions”. “However over the medium term,” he continues, “new and existing customers will benefit from accelerated investment in our technology development and global delivery capability. While we already share a number of mutual clients, this acquisition provides SmartStream with greater access to a broad array of new clients and strategically important Middle Eastern and global markets.” Longer term, he says, “this acquisition presents an exciting opportunity for SmartStream to place our proven technology at the heart of the DIFC’s platform for delivering a new generation of hosted information and trade processing services”.
The concept of outsourced data services is clearly not new, but as has been well-documented in Reference Data Review over the years, the experiences of the providers that have entered into the space historically have been patchy, with successes hard to come by.
Nonetheless a couple of drivers together could serve to push hosted data services and outsourced data management to the fore. One is the prospect of tough times ahead in the markets, which is inevitably leading financial institutions to streamline operational costs. The other is increased regulatory demand for transparency – driven by MiFID, for example – which is creating a requirement for absolute excellence in data management. At a recent Omgeo-convened roundtable in London on the future of the back office, Anthony Kirby, currently on gardening leave having left his role as regulation guru at Accenture to join Ernst & Young, said there is great potential for firms to make businesses out of their expertise in reference data. “There are big opportunities on the data side,” he said. “We are seeing the major firms appointing chief data officers, and beginning to commercialise reference data: and all this at time when the regulators are demanding firms offer greater and greater transparency.”