The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Trading Tech Consolidation Continues with State Street’s $2.6bn Purchase of Charles River

State Street’s $2.6 billion acquisition of financial data firm Charles River Systems, Inc (Charles River Development) has been heralded in some quarters as game changing. But is it really, or is it perhaps just another step in ongoing consolidation in the trading tech space, and indeed in the logical development of the role of the global custodian?

State Street says it plans to offer its clients Charles River’s front-office interoperable data aggregation and management platform, used already by more than 300 investment firms and financial services companies, complete with analytics, compliance tools, investment workflows and connectivity to other industry platforms and providers.

Combining Charles River Development’s portfolio management, trading and compliance capabilities with State Street’s asset servicing capabilities, the idea is to provide a comprehensive front-to-back office platform across the whole investment process that will also enable clients to integrate and align their preferred systems with State Street provided data (now standardised and centralised), as well as gain access to liquidity, insights and infrastructure.

The transaction is the latest in a series of corporate actions in the maturing trading technology marketplace. This year has seen the merger of Scandinavian OMS provider Itiviti with French trading connectivity specialist ULLINK, and ION Trading’s agreement to buy Fidessa, a dominant provider in the OMS/EMS space, for £1.5 billion. Given this price tag, commentators have suggested the $2.6 billion State Street has agreed to pay for Charles River is a high price, but then beauty is in the eye of the beholder and CRS appears to have strategic value at the heart of State Street’s technology-based client offerings.

The size of deal, though, may prick up ears for other reasons. Certainly, the number of independents still standing in the front-office trading space is dwindling, and the likes of LineData Services may be encouraged to look at a sale by the price Charles River has managed to achieve. And as Blackstone Group mulls its options for the new Thomson Reuters – and looks to spin off the likes of TradeWeb and other transaction related assets to help finance its $17 billion deal for TR’s Risk & Finance group – might it be tempted to add the REDI buy-side OMS (pedigree: Goldman Sachs via Spear, Leeds & Kellogg) to the list of properties up for sale?

State Street’s vision for Charles River is consistent with recent initiatives to offer value-added capabilities to investment management clients as part of its custodian activities. The Charles River deal comes in the wake of significant additions to the bank’s data and portfolio management solutions. Two of these – ‘Data’, an enterprise data management solution, and ‘Beacon’, a business transformation programme refocused around digital integration across infrastructure – were launched in 2015. Last year saw the launch of Quantextual Idea Lab, State Street’s research management platform, and ESGX, offering analytics that help clients assess the ESG risk/return profile of their portfolio. The bank has also been building up a portfolio of value-added data services and tapping into so-called alternative data sets to provide unique insight for its clients.

With banks eager to capitalise on how data is changing investment, in March and April of this year a State Street commissioned survey of investors’ views on data management and analytics found that more than one-half use multiple data tools to achieve business functions, and 42% struggle with the lack of integration between data sources and types. More than one-fifth responded that data and analytics capabilities are one of their most competitive advantages, while nearly 40% of the 86 individuals canvassed claimed their institutions planned to outsource these capabilities over the next three years.

Moreover, 60% of institutions said regulatory changes have driven their firms to make major technological investments over the past five years. The factors most likely to require changes to the way institutions manage investment data over the next five years, were found to be increased demands from regulators (57%), increased demands from investors (32%), more stringent risk management standards (27%), and expansion into new asset classes (25%).

As institutions are challenged by these regulatory and investor expectations, expansion goals, technological requirements and a slower industry growth outlook, State Street saw a demand in the market for solutions that span the entire investment lifecycle. Acquiring Charles River Development’s front-office capabilities was the missing piece in State Street’s puzzle.

The State Street acquisition of Charles River, expected to be completed in the fourth quarter of 2018, will be financed by the suspension of around $950 million of State Street’s share repurchases in the second quarter of 2018 and during the remainder of 2018, along with the issuance of equity, with approximately two-thirds of such equity expected to be in the form of common stock and one-third in preferred stock.

“This acquisition represents not only a significant investment in our future, but also recognition that the ability to assist clients in managing their data needs and extract insights from their data is increasingly the most important differentiator for our industry,” said Ron O’Hanley, president and chief operating officer of State Street in a statement.

Jay Hooley, chairman and CEO of State Street, added: “Clients today want solutions that can add value and achieve efficiencies from portfolio modelling and construction all the way through to custody as they face increasing complexity and regulatory expectations, and the need to manage costs and achieve product or geographic expansion.”

Related content

WEBINAR

Upcoming Webinar: Best practice approaches for corporate actions automation

Date: 18 November 2021 Time: 10:00am ET / 3:00pm London / 4:00pm CET Duration: 50 minutes Demand for timely and accurate corporate actions data is growing as volumes and complexity rise, and financial institutions acknowledge the increasingly costly gap between accurate corporate actions processing in real, or near-real, time and faulty processing caused by poor...

BLOG

AxiomSL Integrates ESG and Financial Reference Data to Automate Sustainability Reporting

AxiomSL has released an Environmental, Social and Governance (ESG) solution designed to automate compliance with sustainability and social impact reporting requirements being developed by the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and other regulatory bodies. The solution standardises the process of integrating ESG data attributes, such as counterparty exposures, climate...

EVENT

RegTech Summit London

Now in its 6th year, the RegTech Summit in London explores how the European financial services industry can leverage technology to drive innovation, cut costs and support regulatory change.

GUIDE

Trading Regulations Handbook 2021

In these unprecedented times, a carefully crafted trading infrastructure is crucial for capital markets participants. Yet, the impact of trading regulations on infrastructure can be difficult to manage. The Trading Regulations Handbook 2021 can help. It provides all the essentials you need to know about regulations impacting trading operations, data and technology. A-Team Group’s Trading...