Given its ambitions to become an all round data utility provider for the financial services markets, the Depository Trust & Clearing Corporation’s (DTCC) acquisition of UK-based counterparty and entity data vendor Avox this week comes as no surprise. DTCC has been gradually positioning itself as a utility provider, rather than your common or garden vendor, over the last year or so (its establishment of its Warehouse Trust subsidiary for the derivatives market is one such example) and the tagline of the newly acquired Avox is further fuel for the fire: “Now an industry owned business entity data utility”.
DTCC has acquired the outstanding shares of Avox, which focuses on the cleansing and maintenance of entity and counterparty data, in an all cash deal for a sum that is only identified to be in the region of the low double digit millions, in British pounds rather than US dollars. Deutsche Börse, which held the majority of shares in Avox, formally closed the transaction with DTCC on 1 July. Under the terms of the deal, the two founders of Avox, Ken Price and Steve French, who were also minority shareholders, will head the company in the capacity of chief executive officer and chief operating officer, respectively.
Avox’s success in establishing itself as a key player in the entity data space is obviously the real attraction for DTCC. Avox is also closely aligned with one of DTCC’s close market collaborators in the form of Markit Document Exchange due to their joint work for customer Citi and their official partnership agreement, signed last April.
Markit and DTCC have been close collaborators in the derivatives and loans markets in particular for some time, with a formal derivatives partnership signed back in July 2008 and the launch of the MarkitServ platform in September of last year. Then the LoanServ platform launch earlier this year, which is also using the Markit entity identifier system for loans. DTCC’s ambitions are clearly to become a reference data giant.
The entity space is therefore another key piece of the puzzle to slot into the overall DTCC portfolio. Avox clearly caught the eye of the larger vendor due to its strategic tie ups with compatible players and earlier this year, Avox also formally launched its joint venture with Standard & Poor’s owned Cusip Global Services (CGS) based on their Cusip Avox Business Reference Entity identifier (Cabre) codes. The vendors claim these codes will allow users to identify every entity involved in the transaction lifecycle of a financial instrument, thus providing a method via which to more easily track counterparty exposure and better meet regulatory requirements: something that DTCC is likely keen to get embedded within its trade repositories and other compatible product lines.
For Avox, on the other hand, the benefits of being part of a much larger vendor are clear. The usual benefits of extended client reach, a bigger R&D budget and the potential of (the oft used word in these situations) synergies between the parties are there, but a much bigger driver is on the horizon. In a letter to its customers, Avox’s Price explains the potential to “broaden and enhance” the vendor’s solution set by becoming a part of the DTCC’s planned “unique platform that will deliver a wider range of reference data on securities and legal entities”.
Price continues: “DTCC already has three decades of experience and a growing range of data management and reference data services aimed at helping its customers, including its Global Corporate Action (GCA) Validation Service, the New Issue Information Dissemination System (NIIDS), and security data from its master files, which provides basic information on more than three million securities held in custody at DTCC’s depository.” More than enough experience to become the reference data utility that the regulators are asking for perhaps?
DTCC’s reach within the infrastructure provider community was a key attraction for Price, he says in the letter. “The market has long searched for a true industry owned utility platform for business entity reference data. Combining Avox’s proven capability to deliver high quality content with the DTCC’s networked community of users and user governance is exactly what firms have been asking for,” he adds.
Moreover, the fact that DTCC defines itself as market neutral means regulators are also likely to take a keen interest in its extended potential in the utility space. Could this deal represent a solution to the dilemma of building a reference data utility from scratch? DTCC and Avox likely think so, but what about the market?