In line with the current boom in the valuations sector, last week SIX Telekurs acquired the evaluated pricing business of niche player CSV in order to boost its offering at the more illiquid end of the instrument pricing spectrum. Barry Raskin, managing director of SIX Telekurs in the Americas, speaks to Reference Data Review about the decision to buy the firm, which the vendor has been using as a source for complex securities evaluations since its partnership agreement in March last year.
The decision to buy a niche vendor in the complex pricing sector was largely motivated by a desire to boost SIX Telekurs’ ability to react to market change and proactively meet clients’ requests for new models, says Raskin. He has been discussing the possible acquisition with Perry Beaumont, principal at CSV, since the partnership agreement to use CSV’s complex securities pricing was signed last year.
This all falls into SIX Telekurs’ strategic objective of bolstering its offering against a background of increasing market competition in the valuations space. This competition has manifested itself in a number of high profile M&A, the most recent of which was Tullett Prebon’s acquisition of OTC Val last month. It seems that niche valuations providers are a hot commodity in a booming market, as firms are compelled to invest in third party pricing feeds and new solutions to cope with increased transparency requirements from regulators and clients.
SIX Telekurs initially chose to partner with CSV because of the strength of its modelling capabilities, notes Raskin. The vendor had a gap in its capabilities in the complex and illiquid instrument space and CSV was chosen to ensure SIX Telekurs had more comprehensive coverage of the markets overall.
The vendor has now entered into an agreement with CSV Incorporated to purchase the evaluated pricing business. “This decision was largely client driven but it is also part of our corporate strategy to ensure that we are robust enough in the evaluated pricing business for our customers,” he explains of the acquisition. As of late March 2010, CSV produces prices on approximately 51,000 instruments for SIX Telekurs clients.
It is all part of the strategic vision to improve SIX Telekurs’ in-house expertise and as the vendor was already redistributing CSV’s data, the integration work required will be minimal, notes Raskin. The vendor can now be reassured that CSV will not be snapped up by the competition and will not unexpectedly increase its prices, thus reducing the possible impact on SIX Telekurs’ end clients.
“The real asset is that we can now get creative and we have the expertise to internally develop new models for any kind of instrument out there,” he explains. “We were reassured of CSV’s capabilities because of the positive client feedback we received about their data and methodologies. Complex asset pricing requires a certain degree of hand holding with clients to explain the underlying data and CSV was more than able to meet these needs.”
In terms of competition, Raskin feels that there is room enough in the short term for all the players out there in the market due to the strong appetite for third party data and solutions. “Each vendor has its own approach to the sector – some firms are model driven, some directly access the trading floor for data, others use new approaches – and due to the desire for a degree of choice in the market in terms of providers, there is space for a range of vendors,” he says.
Raskin believes this competition is of benefit to the market overall because of the provision of multiple options for firms when selecting third party data providers. “Firms will not want to rely on a single source for this data due to the desire for increased data quality and reassurance that technical problems at one vendor will not impact their end clients,” he adds.
CSV has previously worked with other players in the evaluated pricing market and the acquisition will not impact these relationships, notes Raskin. In fact, he has recently spoken to one major redistributor of this data that was pleased about the acquisition as it will add “more meat to the bones” of the overall offering.
In the spirit of the barrage of M&A activity going on in the market at the moment, Raskin does not rule out further acquisitions in the valuations space for SIX Telekurs in the future. However, he is unaware of any planned acquisitions in the near future: “It would have to be a really compelling proposition for us to consider it. This might include the acquisition of vendors with more localised offerings for a particular market that we do not cover.”