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It wasn’t an incredible year but in the rich granular framework of markets this was nonetheless, a fascinating 12 month period. Right to the very end, we saw innovations being delivered with the launch of the American Financial Exchange from the offices of the redoubtable Dr Richard Sandor. At the same time, we also saw cracks appear amongst some platforms - various competitor entities are rumoured to be somewhat short of funds as we enter 2016. With QE continuing in Europe at least...the swaps market has yet to show its potential in its new CCP-centric format. There may yet be US interest rate rises in the New Year but an outbreak of that now almost mythical creature, a fully fledged yield curve, may take somewhat longer. Every month lost piles pressure on various SEFs. Meanwhile bond platforms exploded, albeit with no newcomers yet really demonstrating much tangible volume while some, such as Bondcube disappeared altogether. Competition remained a topic of hot discussion in the world of ETD as the LSE’s propaganda machine continued to push the ill-defined notion of open clearing. However, some say that next year will be the year of competition in ETD, led by the likes of LSE Rita-Curve & NLX. However, as that was also the prognosis for some ‘forward looking’ features for several consecutive years’ past, I cannot say I am holding my breath that we will see tangible results soon.
In the equity world, a couple of new competitors emerged. Plato resembled a European socialist cooperative which sort of caught the zeitgeist of Jeremy Corbyn being elected UK Labour leader - both seem to favour politburos, do a lot of talking and apparently achieved very little by the end of 2015. Luminex on the other hand, despite sounding like a French producer of electrical kitchen utensils, has become a tangible block trading facility which is doing business. Elsewhere exchanges did block trades for themselves. LSE Turquoise led the way with gusto and DB1 announced plans to deliver a similar service.
On the regulatory front, transAtlantic bickering verged on utter farce while the UK Finance Minister ousted the head of the FCA. CMU became the acronym on everybody’s lips and as usual at this early stage, it resembles the most beautiful shadow on the far side of the ballroom. The tricky bit is that once it goes through the blob of the EU, it may not be such an attractive proposition.
Deals were not as plentiful as many may have expected during the year albeit the pace picked up by year’s end. The LSE lost out slightly in the Chinese summer turmoil on the sale price of the Russell asset management business but had a good year. The deal to buy GFI ended up a fascinating tale of negotiation and tactics and in this respect Howard Lutnick was in awesome form, achieving a hostile takeover of GFI and then effectively selling its Trayport business to the ICE leaving the total expenditure on GFI in the ‘modest’ six figure millions (and he still has other assets to sell!). Elsewhere in the IDB universe, ICAP is looking to be a whole new business while Tullett grows through the acquisition of the old ICAP voice broking business. However, the biggest winner of the year was undoubtedly The ICE. In the last quarter of the year, they had a modest deal frenzy. Trayport was a modest acquisition by ICE standards but that came just weeks after ICE bought the world’s third biggest data vendor Interactive Data Corporation. A six billion dollar spree and yet, demonstrating all you need to know about the new scale of the really large quarter of exchange players. ICE took it in its stride. Once again their execution proved second to none and they even closed the October deals by mid-December! That means the decks are cleared for 2016 - for the first time in years, I actually think a large deal flow is coming in the next 12 months and I anticipate ICE will be at the centre of much of it.
Meanwhile for those who fancied themselves the hipsters in the field of financial infrastructure, the Blockchain was on everybody’s lips - some of those lips even belonged to brains which appeared to understand what they were talking about. There is great value in fintech but a lot of speculative hogwash too! In the broader infrastructure environment, there is great potential in the marketplace. 2015 felt like a year awaiting action - now as for 2016? I suspect, at last, there will be a fascinating deal flow…
Patrick L Young
Patrick will be back in 2016 with more Exchange Invest, another Young Markets & more...
